9911796707
TMI Blog1999 (4) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... context of the breaches of regulations 9 and 10 which require a public announcement of the intention to acquire substantial shares in certain circumstances. The defendant Nos. 1 to 11, on the other hand, dispute the right of third parties like the plaintiffs to challenge such acquisitions, the rights of plaintiffs claimed to be based in common law and/or statute and as to whether the voting rights flowing from such shares can be injuncted by filing a suit in the context of the relevant provisions of the Companies Act, 1956. Consequently, the questions pertaining to balance of convenience and appropriate orders to be passed at the interlocutory stage are also raised. 2. Suit No. 3910 of 1997 has been filed by eleven plaintiffs; first nine of these plaintiffs are individuals and the latter two are private companies. They are all described as the Reddy Group in para 1 of the plaint. Defendant No. 1 to this suit is one Kishore R Chhabria and defendant No. 11 is one Mr. Madan D Chhabria (stated to be uncle of defendant No. 1). Defendant Nos. 2 to 10 are companies which are described in para 3 of the plaint as the companies owned and/or controlled by the 1st defendant. Defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendant No. 5 of the first suit being similar to the shares acquired by defendant Nos. 3, 7 and 8, ( i.e., all of them are unregistered), what will be decided about the unregistered shares of defendant No. 5 in these motions in the first suit would apply in principle to the unregistered shares of defendant Nos. 3, 7 and 8. Notice of Motion No. 184 of 1999 in this second Suit No. 297 of 1999 seeks a restraint on the defendants thereof from preventing the plaintiffs from attending the AGM on 30-12-1998 and exercising voting rights flowing from the concerned shares. This second suit can, therefore, be generally described as a sort of a counter suit. Hence for the sake of convenience, the submissions of the rival parties are considered hereinafter initially in the context of the first suit. Thereafter whenever it is necessary, there is a reference to the second suit and it is so stated specifically. A short business profile of Herbertsons Ltd. (Defendant No. 12) 5. Para 1 of the plaint places on record some information about defendant No. 12-company which is as follows: ( a ) Control - It is stated that this company has been for past many decades a constituent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is stated in para 8 that the plaintiffs have over the years, invested vast sums of money on distribution, marketing and recently on the production of various products of Herbertsons. As an instance, it is informed that in the State of Tamilnadu, the plaintiff group has spent an amount of over ₹ 10 crore from 1985-86 onwards to promote and establish the products of defendant No. 12 in the market. It is stated in para 2 that their association with defendant No. 12 initially commenced with distributing their products in various States including the State of Tamilnadu, Andhra Pradesh and Kerala, but the relationship between Mallya family and the Reddy family dates back to a generation and from 1985 onwards the Reddy group has spent huge amounts over setting up and purchasing various distilleries in Madras, Hyderabad, Goa and Kerala for the purposes of production and bottlling of liquor exclusively for the UB group including defendant No. 12-company. In paras 14 and 17 of the plaint, it is stated that the plaintiffs are the valuable holders of rights of property and it is the breach thereof which has led them to file the present suit. Shareholding of defendant Nos. 1 to 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent of the paid-up capital. These shares are also not registered as yet. ( b )Defendant No. 8, Darrel Traders (P.) Ltd. - Acquiring 25,800 shares on 19-12-1997 constituting 9.27 per cent of the paid-up capital. These shares are also not registered as yet. 9. It is stated in para 6 of the plaint that through the acquisition of shares preferred to in paras 4( a ) to ( d ) of the plaint, which are same as the above mentioned clauses ( i ) to ( iv ) of para 18 quoted above, defendant No. 1 along with defendant Nos. 2 to 10 acquired a further 20.91 per cent shares taking the tally of the shareholding of defendant Nos. 1 to 11 to 46.91 per cent. If one adds the acquisitions in paras ( v ) and ( vi ) above to these acquisitions, the percentage of holding of defendant Nos. 1 to 11 goes up to 49.05 per cent. Allegation of concerted and clandestine action 10. The above referred acquisition of the shares of defendant No. 12 by defendant Nos. 1 to 11 from time to time are alleged to have been effected in concert with each other in a planned manner to acquire the voting rights directly or indirectly with others acting in concert with them as stated in para 16 of the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by defendant No. 1 acting in concert with defendant Nos. 2 to 11 (defendant Nos. 2 to 10 of which are companies) is an attempt to takeover defendant No. 12-company. It is further stated that this exercise is being conducted through clandestine transactions and constitutes undesirable practices which negate transparency and fair and truthful disclosure in the interest of the public and is contrary to public policy and the policy of the law . The above referred declarations made on 17-4-1997 under the SEBI Regulations of 1997 are relied upon to infer a prior existing arrangement amongst defendant Nos. 1 to 11. The actual arrangement/understanding amongst defendant Nos. 1 to 11 would be a matter of evidence, though the aforesaid declarations are relied upon as a prima facie piece of evidence in this behalf. Legal submissions 12. It is, therefore, stated in para 13 of the plaint that the defendants are proposing to acquire the shares referred to in paras 4( b ) and ( c ) of the plaint in violation of the SEBI Regulations of 1994 (in force from 7-11-1994) and particularly regulations 9 to 11 and the shares mentioned in para 4( d ) being in violation of the SEBI Regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 11 intended to dislodge the existing management. It is stated that notices had been given by defendant No. 12-company for seeking the re-appointment of three directors who were retiring and also to confirm the appointment of one more director who was appointed as an additional director. The plaintiffs apprehended that defendant Nos. 1 to 11 would exercise their voting power (increased in the above referred manner) to defeat these resolutions and it is, therefore, that they have been required to move this Court. They have sought declarations, as stated above, with respect to the illegality of the conversions and acquisitions of shares as mentioned in para 18 (referred to above) and the rectification of the membership register of defendant No. 12 in prayer clause 23( b ) which clause again refers to clauses ( i ) and ( ii ) of para 18. Prayer ( c ) seeks an interim injunction on the voting rights flowing from the disputed acquisitions. The course taken by the present proceeding 14. The plaint has been amended twice and the above referred narration flows from the plaint as it exists now after the two amendments. No written statement has been filed so far though the time to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devices were that through a proprietary concern and/or companies of defendant No. 11, namely, Royal Wines Tracstar Investments (P.) Ltd., large sums of money were shown as loans to defendant Nos. 3 to 5 (Rs. 4.13 crore to defendant No. 3, ₹ 1.12 crore to defendant No. 4 and ₹ 1.35 crore to defendant No. 5) from which defendant Nos. 3 to 5 had acquired the shares disputed in paras 4( b ), ( c ) and ( d ) corresponding to paras 18( ii ), ( iii ) and ( iv ) of the plaint. It was further stated in the supporting affidavit that defendant Nos. 3 to 5 had a nominal paid-up capital of ₹ 4,00,200, ₹ 200 and ₹ 200, respectively. Defendant Nos. 3 to 5 feigned inability to repay the above referred loans and allegedly offered the entire paid-up capital of these companies, as stated above, in discharge of the loans of ₹ 4.13 crore, ₹ 1.12 crore and ₹ 1.35 crore. It is, thus, submitted in para 12 of the affidavit in support of this second notice of motion that these acquisitions of shares of defendant No. 12 were made through defendant Nos. 3 to 5 from the funds of defendant No. 11 who is the uncle of defendant No. 1. In their support, the plaint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r D.K. Deshmukh, J. on 21-12-1998 when the counsel for the plaintiffs as well as the defendants were heard. Certain arrangement was arrived at between the parties and it was also agreed that it was not necessary to give any reasons in support thereof. It was agreed that item Nos. 2, 6 and 7 in the notice convening the AGM will be passed unanimously by show of hands. Item No. 1 would not be opposed by defendant Nos. 1 to 11. The votes cast by defendant Nos. 2 to 5, which were disputed, will be kept separately in a separate cover. An officer of the Court was directed to remain present at the time of the meeting and to act accordingly. The relevant para 2 of the said order dated 21-12-1998 reads as follows : 2. The parties are agreed that for passing ad interim order in following terms on this motion, no reasons are necessary to be recorded. ( 1 ) The 61st annual general meeting of Herbertsons Ltd. (defendant No. 12) convened to be held on 30th December, 1998 shall be held and that the resolutions in respect of item Nos. 2, 6 and 7 of the notice dated 30th November, 1998 convening the said annual general meeting (Exh. A to the affidavit dated 14th December, 1998) in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffs of the second suit thereafter took out a draft notice of motion therein which was moved before Radhakrishnan, J. on 29-12-1998. The motion sought a restraint on the defendants of the second suit restraining them from preventing the plaintiffs in attending the AGM on 30-12-1998 and from exercising the voting rights flowing from the concerned shares. The learned Judge on hearing the counsel on both the sides, passed an order similar to one which was passed earlier on the motions in Suit No. 3910 of 1997. This order was also passed by an agreement of the parties and hence no reasons were recorded. Relevant para 2 of this order reads thus : 2. The parties are agreed that for passing ad interim order in following terms on this motion, no reasons are necessary to be recorded. ( 1 ) The votes cast at the 61st annual general meeting of the 1st defendant-company by the plaintiffs in respect of the suit shares mentioned in prayer ( a ) of the plaint shall be kept separately, but not counted. The votes shall be kept in separate covers under the seal of the company. The votes, if any, cast by the transferors or their proxies, in respect of the suit shares acquired by the plaintiff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Power Corpn. of India Ltd. [1995] 84 Comp. Cas. 70 1 . He submitted that these plaintiffs in the second suit will follow their remedy in the CLB, and, therefore, stated that they were not pressing the notice of motion moved in the second suit. 21. Mr. F.S. Nariman, the learned senior counsel appearing for the plaintiffs in the first suit, therefore, submitted that the order passed by Radhakrishnan, J. on 29-12-1998 would no longer survive and that it will also mean that since the plaintiffs of the second suit were no longer pressing for the injunction that they had sought therein, they could be prevented from attending the meeting and their votes which had been segregated, need not be counted at all. Mr. Dada, on the other hand, submitted that merely because the plaintiffs of the second suit were not pressing the motion, it did not mean that the defendants of the motion could do something which was not permissible in law. In my view, Mr. Dada is right in his submission. Merely because the motion is not pressed, it will not mean that the plaintiffs of the second suit could be prevented from attending and voting at the meeting (and their votes being considered) if they are o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for particulars be disposed of prior to the hearing of the notice of motion. It is further stated that the plaintiffs have failed to furnish all the necessary particulars and in the absence of them, it is not possible for defendant No. 11 to file a complete and exhaustive affidavit in reply. The affidavit in reply was, therefore, being filed without prejudice to the aforesaid chamber summons and leave was sought to file a further affidavit after the necessary particulars became available. Inasmuch as the three notices of motion subsequently reached together for hearing before me and were argued at length without the chamber summons being disposed of first, while passing this order, I asked Mr. Bookwala and Mr. Madon, the learned counsel appearing for the defendants, as to whether they were pressing for an order on the chamber summons at this stage, and they stated that the motions be decided as of now and that the defendants were not pressing for any order on the chamber summons before the motions being decided. In the circumstances, the only order on the chamber summons at this stage will be that it will be heard and decided at a later point of time either separately or along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with respect to 41,03,241 equity shares aggregating to 43.09 per cent, defendant Nos. 2 to 10 were registered owners in respect thereof, and in law they could not be restricted or prevented from exercising any voting rights. ( d )Defendant Nos. 2 to 10 own/hold over 50 per cent of the equity capital of defendant No. 12, of which 43.09 per cent is registered and any relief affecting the voting rights flowing from all these shares would be contrary to all cannons of corporate democracy. 25. In paras 6( a ) and ( b ) of the reply, the collusion and collateral purposes of the plaintiffs were placed on record which were as follows: ( a )The plaintiffs have attached the copies of the Board minutes which were not easily available to the shareholders. ( b )The plaint itself indicates that the plaintiffs had obtained their information from Mr. Mallya and his officers and this confidential information include- ( i )copies of statutory disclosures made by defendant No. 11 under the SEBI Regulations of 1997; ( ii )precise details of shareholding of each of the companies under the control of defendant No. 11. 26. Thereafter there are various similar statements made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er cent as well as the subsequent conversion of the debentures which were purchased initially on 14-12-1993. ( ii ) In para 8 of the affidavit in reply, it is stated that defendant Nos. 3, 4 and 5, (to whom defendant No. 11 had advanced diverse amounts) had purchased shares of Herbertsons. They, however, failed to repay those amounts, and, therefore, the shareholders of those companies were taken over by defendant No. 11, his wife and/or Seven Star Investments Trading (P.) Ltd. (hereinafter referred to as Seven Star ), a company owned and controlled by defendant No. 12. ( iii ) As far as the acquisition of shares by defendant No. 3 is concerned, they had acquired the shares of defendant No. 12 in December 1995. In para 9 of the reply, it is stated that before defendant No. 11 acquired the entire shareholding of defendant No. 3, (as stated above, through the purchase of its shares by Seven Star) the shareholders of defendant No. 3 were one Imtiaz Kheyroolla, Farida Kheyroolla and Ram Raheja. It is further stated that these persons were not related to defendant No. 11 within the meaning of the concept of being related as defined under the Companies Act. It is further state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SEBI Regulations of 1994 and that he had already sold off his shareholding in IMFA (defendant No. 3) and had also resigned as its director. 29. ( i ) Thereafter in para 13 of the reply, defendant No. 11 deals with the acquisition of shares by defendant No. 4 (Mahameru). It is stated that before defendant No. 11 acquired the control of Mahameru on 13-2-1997 (when he was appointed as additional director thereof), Mahameru was already the registered shareholder of 4,71,600 shares in defendant No. 12. A further 1,500 shares were acquired by it by 26-8-1997. It is also accepted that on the very day, i.e., on 13-2-1997, a group company of defendant No. 11, namely, Seven Star, had purchased the entire shareholding of defendant No. 4. Thereafter in that para, it is explained as to how these 4,71,600 shares were purchased from time to time during the year 1995-96 and as to how different persons unrelated to the family of defendant No. 11 were in charge of defendant No. 4. It is further stated that before defendant No. 11 took over the control of defendant No. 4, through the purchase of Seven Star, the directors of defendant No. 12 had already, i.e., on 26-9-1996 approved the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 11) and his wife, who were holding those shares. Thereafter in para 14( e ), it is stated that Herbertsons refused to register these transfers for being in violation of SEBI Regulations and it is further stated in para 14( i ) that Shirish had filed Appeal No. 21 of 1998 before the CLB under section 111A(2) of the Companies Act to challenge the said refusal. Legal submissions of defendant No. 11 30. Thereafter in para 15 of the rely, defendant No. 11 has culled out his legal submissions in this behalf, which, in a nutshell, are as follows: ( a )The provisions of SEBI Regulations of 1997 would not apply to these acquisitions since they are supposed to operate prospectively and they had come into force on 20-2-1997. It is, therefore, submitted that the widening of the coverage, as has been done in the SEBI Regulations of 1997, would not cover the disputed acquisitions which are all prior. ( b )The acquisitions do not violate clauses 40A and 40B of the Listing Agreement of the Stock Exchange. ( c )The acquisition of shares of defendant No. 12 by defendant Nos. 3, 4 and 5 do not violate any of the provisions of the SEBI Regulations of 1994 for the following rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18 of the reply, defendant No. 11 has accepted that SEBI called upon the managing director of defendant No. 3 to show cause as to why prosecution should not be launched under section 24 of the SEBI Act and for alleged violation of regulations 6 and 10 of 1994 Regulations and that the same was replied by defendant No. 3 by its advocate s letter dated 3-7-1997. It is further accepted in para 17 that on 17-4-1997, defendant Nos. 1, 2, 3 and 11 made the necessary disclosures under the SEBI Regulations of 1997. 32. It is recorded in para 21 of this reply that the shares lodged by defendant No. 4 - Mahameru were registered by defendant No. 12 on 26-9-1996. 33. Thereafter, in paras 15, 26 and 27 of the reply, it is stated that in a meeting held on 31-12-1997 the chairman of SEBI asked defendant No. 11 to make a public offer in respect of the aforesaid acquisitions to resolve all controversies. Accordingly by his letter dated 20-1-1998 addressed to SEBI, defendant No. 11 offered to make public offer jointly or severally through his companies under regulations 10, 11 and 12 of the SEBI Regulations of 1997 while stating that the offer was without prejudice to the rights and conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the plaintiffs and Dr. Mallya or that the plaintiffs had been put up by defendant No. 12 as alleged. In para 10, the allegation of siphoning off funds with active connivance of the plaintiff group are also denied. In para 26 of the reply, it is denied that high prices were being given by defendant No. 12 to the Balaji group. In respect of transfer of Bombay Breweries, it is stated that the same was effected way back in 1995 and legitimately after seeking the approval of the shareholders in the AGM of 16-12-1995. 36. Inasmuch as defendant No. 12 has chosen to adopt the reply filed to the Notice of Motion No. 3932 of 1998, it would be advisable to refer to some of the relevant statements and therein. This is a joint affidavit of one Mr. A. Raghunathan, divisional vice president (finance) and Mr. S.R. Gupte, a director of defendant No. 12 and vice-chairman of UB group. This affidavit in reply to the Notice of Motion No. 3932 of 1998 affirmed on 5-2-1999 by and large supports the plaintiffs and the prayers sought by them. The affidavit, however, explains in para 14 as to why defendant No. 12 had initially declined to accept the transfer of shares to defendant No. 3 (IMFA) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of para 49 that it was expressly agreed that Mr. Vijay Mallya and his nominee directors shall exercise complete control over the management of defendant No. 12. 37. Plaintiff No. 1 has thereafter filed an affidavit in rejoinder on 5-2-1999 denying various allegations which are made in the reply filed by defendant Nos. 1 to 11 and particularly defendant No. 11. Notice of Motion No. 3932 of 1998 38. As far as Notice of Motion No. 3932 of 1998 is concerned, the principal prayers therein are same as that of Notice of Motion No. 3120 of 1997 except that as stated earlier, now there is a reference specifically to para 18( iv ) of the plaint in the prayer clause. The affidavit in support reiterates and repeats what is stated mainly in the plaint and as stated earlier, para 12 thereof particularly emphasises that defendant Nos. 3, 4 and 5 were small companies put up as devices mainly to buy the shares of defendant No. 12, their monies came from Royal Wines Tracstar Investments, companies under the control of defendant No. 11 which amounts were shown as loans and on the ground that they were unable to return the money, the companies were taken over, prior whereto, they had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed, plaintiff No. 1 filed a rejoinder on 5-2-1999 controverting various allegations made in the reply of defendant No. 11 particularly the one made in para 16( h ) of the affidavit of defendant No. 11 dated 27-1-1999, which is specifically denied. This denial is seen in para 32 of this rejoinder. 41. It is relevant to note that defendant No. 11 has filed a third reply on 9-2-1999 to the above referred joint affidavit in reply filed by defendant No. 12 in this motion. He has repeatedly and exhaustively dealt with the stand which he has taken from time to time. He has referred to the statement made by Mr. Vijay Mallya before the income-tax authorities which is annexed at Annexure D to this third reply to challenge his credentials. Defendant No. 11 has filed two sur-rejoinders dated 16-2-1999 in both the motions. 42. After the orders as referred to earlier were passed, at the initial stage, the officer of this court attended the AGM which was to be held on 30-12-1998 and has filed a report in her capacity as Commissioner. This report is made on 6-1-1999 and along therewith the segregated votes have been placed in a sealed packet as directed earlier. 20-4-1999 Securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to regulate the securities market; and ( c )for matters connected therewith or incidental thereto. Section 3 of the SEBI Act provides that the Board shall be a body corporate and it is for the Central Government by notification to establish it. Section 4(2) of the SEBI Act provides that the management of the affairs of the Board shall vest in the Board consisting of the members as laid down in the section. Section 4(3), however, additionally provides that except otherwise determined by the regulations, the chairman shall also have powers of general superintendence and directions of the affairs of the Board and may also exercise all powers and do all acts and things which may be exercised by the Board. Section 11 of the SEBI Act deals with the functions of the Board. The provisions of this section which are relevant in this matter are as follows: 11. Functions of Board. -(1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15F, 15G and 15H, the Board shall appoint any of its officers not below the rank of Division Chief to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty. (2) While holding an inquiry the adjudicating officer shall have power to summon and enforced attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the adjudicating officer, may be useful for or relevant to the subject-matter of the inquiry and if, on such inquiry, he is satisfied that the person has failed to comply with the provisions of any of the sections specified in sub-section (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections. Section 15K provides for establishment of Securities Appellate Tribunal and under section 15T an appeal is provided against the order of the adjudicating officer to the Securities Appellate Tribunal. Section 15Y provides that no civil courts shall have j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement either individually or all with each other; ( ii )a company with any of its directors, or any person entrusted with the management of the funds of the company; ( iii )directors of companies, referred to in clause ( i ) and his associates; and ( iv )mutual fund, financial institution, merchant banker, portfolio manager and any investment company in which any persons has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up capital of that company. ( i ) shares means share in the share capital of a company carrying voting rights and includes any security which would entitle the holder to receive shares with voting rights. Regulation 3( d ) provides that nothing contained in Chapter III (which is on takeover) shall apply to the acquisition of shares in companies whose shares are not listed on any of the stock exchange. Regulation 4 grants a power to the Board to grant exemption which reads as follows: 4. Power of the Board to grant exemption. -The Board may after considering all the relevant factors, such as family arrangements amongst promoters or re-organisation of the company where more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent of the voting rights in the capital of a company, if he has already complied with the provisions of clause 40A and clause 40B of the listing agreement of any stock exchange. 10. Acquisition of 10 per cent or more of the shares of any company through open market purchase. -(1) An acquirer, who holds shares carrying ten per cent or less of voting rights in the capital of the company, shall not acquire any further shares in the company from the open market which when taken together with his existing shareholdings, would carry more than ten per cent of the voting rights, unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with these regulations. (2) An acquirer who on the date of commencement of these regulations holds shares which carry more than ten per cent of the voting rights in the capital of the company, shall not acquire any further shares in the company from the open market unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with the regulations. 11. Who should make the public announcement of offer. -Before making any public announcement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to a minimum as specified in regulation 21; ( b )the statutory approvals under the Companies Act, 1956 (1 of 1956), Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969) and Foreign Exchange Regulation Act, 1973 (46 of 1973) required to be obtained for the purpose of acquiring the shares; and ( c )approvals to be obtained from shareholders of the company of which the shares are being acquired; ( ix )such other information in the investors interest having a bearing on the substantial acquisition of shares. 16. Brochures, advertising material, etc. -(1) The public announcement of offer or any other advertisement, circular, brochure or publicity material issued in relation to the acquisition of shares shall contain information essential for the shareholder to make an informed decision on the offer made. (2) Copies of any advertisement, brochure or document issued to the public under sub-regulation (1) shall be submitted to the Board at least twenty-four hours before its issuance. 17. Letter of offer. -(1) Within fourteen days of the public announcement made under regulation 9 or 10, the acquirer shall through a merchant banker submit the draft of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the share to be acquired, such average shall be calculated on the basis of weighted average prices quoted in at least one other stock exchange to be determined on the basis of the daily trading volume of such shares in that exchange or in any other reasonable manner with the prior approval of the Board; ( d )in case where the shares of the company are offered in lieu of cash payment, the value of such shares shall be determined in the same manner as mentioned in clauses ( a ) and ( b ) as the case may be. 20. General obligations. -(1) The announcements of public offer to acquire shares shall be made only when the acquirer has every reason to believe that he shall be able to implement the offer. (2) Within fourteen days of the public announcement of offer, the acquirer must also submit a letter of offer to the Board of directors of the company, whose shares are being acquired. (3) The acquirer shall state the period for which the offer to acquire shares from the other shareholders shall remain open : Provided that every such offer shall be kept open for a period of not less than four weeks from the date of the offer. (4) The directors of the company of which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here an acquirer holds more than ten per cent shares at the time of commencement of these regulations and was not required to comply with the provisions of clause 40A and clause 40B of the listing agreement, the public offer referred to in sub-regulation (2) shall be to acquire a minimum of such percentage as would increase his shareholding to at least thirty per cent of the total shares of that company. (4) The offer referred to above shall not result in the public shareholding being reduced to less than 20 per cent of the voting capital of the company. (5) Where a person seeking to make acquisition of shares by reason of holding securities, which may carry voting rights at a later point of time, the percentage referred to in the sub-regulations (2) and (3), shall be computed with reference to voting capital of the company including the securities which would carry voting rights. (6) Where number of shares offered for sale by the shareholders are more than the shares agreed to be acquired by the person making the offer, such person shall subject to sub-regulation (1) accept the offers received from the shareholders on a proportional basis. 22. Completion of the offer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of 6 months from the date, the offer is withdrawn. 46. Then comes Chapter IV which is on bail out takeovers which are by way of scheme of merger for rehabilitation with which we are not concerned in the present case. Chapter V provides for investigation. Regulation 33 gives the Board the right to investigate and it reads as follows : 33. Board s right to investigate. -Where it appears to the Board so to do, it may appoint one or more persons as investigating authority to investigate and undertake inspection of the books of account, other records and documents of any person who may have acquired or sold securities to any person for any of the purposes specified in sub-regulation (2). (2) The purposes referred to in sub-regulation (1) may be as follows : ( a ) to investigate into the complaints received from investors, intermediaries or any other person on any matter having a bearing on the allegations of substantial acquisition of shares and takeovers; and ( b )to investigate suo motu upon its own knowledge or information, in the interest of securities business or investors interests, for any breach of the regulations. Thereafter regulation 34 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rests of investors and all the parties concerned in the acquisition process. The Committee recommended various amendments in the Regulations, particularly with a view to cover the concept of indirect acquisition through acquisition of unlisted investment companies. The Committee recommended expansion of the concept of person acting in concert . The Committee recommended that not only acquisition of shares but also voting rights in a company or control over a company, whether the control is exercised directly or indirectly, must also be seen and recommended expansion of definition of acquirer . The Committee also recommended changes in the threshold limit. The Committee recommended that the regulating offer as stipulated in 1994 Regulations may continue but with a provision allowing minimum offer of only 10 per cent for consolidation of holdings by persons present in control of the company. These are some of the recommendations which are relevant for our purpose. Accordingly, new regulations were subsequently framed, namely, SEBI Regulations, 1997. The definition of acquirer specifically stated that it included those persons, who directly or indirectly acquired or agreed to acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. The arguments of particular counsel for defendant Nos. 1 to 11 are, therefore, not dealt with in the order in which they addressed me. They are noted on the topics which they emphasised particularly. This has been done to avoid repetition. Wherever possible, I have referred to the relevant authorities cited and discussed the submissions based thereon by giving the emphasised quotations, though it has not been possible to refer to and deal with all of them sheerly due to the large number of judgments cited. Documents relied upon 50. The learned counsel appearing on both sides assisted me by relying upon different charts and also giving their propositions in writing whenever necessary. They were allowed to rebut every proposition raised by their opponents without insisting on any technicalities. A large number of documents were tendered by the defendants and a few by the plaintiffs also. They consisted of four huge volumes which are marked as Compilation Nos. I, II, III and IIIA. Whichever of these documents are relevant will be referred to as and when necessary. The show-cause notices 51. The three notices given by the SEBI to Ram Raheja, IMFA and thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be an existing shareholder of a company. The said para further states that these acquisitions are made without making a public announcement and hence the person concerned was guilty of violation of the said regulation. Thereafter, the notice deals with the subsequent letter of Mr. Raheja dated 19-8-1996 including his submission that if a public announcement is permitted, the residual public holding would go down to less than 20 per cent, and states that the same is no ground for non-compliance of the provisions. The notice, therefore, informs Mr. Raheja that he is liable to be prosecuted and calls upon him to show cause, failing which the SEBI would be constrained to proceed before the appropriate court of competent jurisdiction. 53. Mr. Raheja subsequently resigned as a director of IMFA (defendant No. 3) and, therefore, second show-cause notice came to be issued to defendant No. 3 itself on 31-3-1997, a copy of which is provided at page 105 of Compilation C-I. This notice also principally reiterates what was alleged in the earlier notice. It repeats that as per regulation 10, an acquirer, who makes outright acquisitions carrying voting rights of more than 10 per cent, would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendant No. 5) and as to how it was a company with paid-up capital of only ₹ 200 and yet was given a huge loan of ₹ 1.35 crore leading ultimately to failure to repay the loan and takeover of the small company. Thereafter, in para 6, it is recorded that the loans were given to IMFA, Mahameru and Shirish for purchasing the shares of Herbertsons Ltd. and inasmuch as the borrowers defaulted in repayment of the alleged dues, the shareholding of the companies were taken over by defendant Nos. 1 and 11. This had resulted into defendant Nos. 1 and 11 acquiring the control of shares of Herbertsons Ltd. Then the notice states It appears that the acquisition of shares are done in a manner to circumvent the provisions of the SEBI (Takeover) Regulations, 1994 . Thereafter, the notice states If the corporate veil of all the companies referred to more specifically above, is lifted, then it appears that the acquisition of the shareholdings in Herbertsons Ltd. are a device to circumvent the provisions of the SEBI (Takeover) Regulations, 1994 and acquire the shares of Herbertsons Ltd. in violation of the said provisions of Takeover Regulation . The notice, therefore, calls upon the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d raised in the reply, Mr. Nariman, the learned counsel appearing for the plaintiffs, submitted during the course of his arguments at the outset that he would require a clarification from the defendant Nos. 1 to 11 of the first suit with respect to their stand on jurisdiction. Mr. Nariman wanted a specific statement from the defendants as to whether they were pressing that plea. If that plea was pressed in service, Mr. Nariman submitted that an issue will have to be framed on this point and will have to be decided at this stage itself. This submission was advanced by Mr. Nariman principally because of the aforesaid submission on behalf of the defendants that it was Mr. Vijay Mallya who was behind the plaintiffs and the appropriate remedy for the reliefs was available to the plaintiffs by approaching the CLB through the company. Mr. Nariman submitted that if that issue was being pressed, then he will expect this Court to frame the issue only on that aspect and to have it decided as a preliminary issue. Mr. Nariman submitted that this issue cannot be mixed up with any other issue in view of the specific provision of section 9A introduced in the Code of Civil Procedure, 1908, through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plaint or in the written statement. If the issue is a pure question of law, then it may be decided without recording evidence, but if it is a mixed question of law and fact, then parties should be permitted to lead evidence on the facts of the case. Question of jurisdiction, even if it is a mixed question of law and fact, it is required to be decided first. For deciding the said issue, the parties are entitled to lead evidence, oral as well as documentary, as that issue is required to be tried and adjudicated finally by the court. The determination of the said issue is not only for the limited purpose of granting interim relief or vacating interim relief. It is true that this procedure requires piecemeal determination of the suit, but that cannot be avoided because of the mandate of section 9A. 60. Mr. Nariman then relied upon a judgment of a Single Judge of this Court in the case of Ignatius O Cunba v. Father Denis [1993] 2 MLJ 1441. In that case, the Trial Judge did not frame any preliminary issue with respect to jurisdiction but the application for temporary injunction as well as the application for deciding the question of jurisdiction were disposed of together. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The said affidavit of defendant No. 1 reads as follows : 1. I say that I have filed an affidavit dated 21st December, 1998 in reply to notice of motion No. 3120 of 1997. In that affidavit in reply, in clause (G) of paragraph 1 have stated as under : (G) This hon ble court does not have jurisdiction to try, entertain and dispose of this suit. 2. Similarly, in the affidavit to oppose grant of ad-interim relief filed by me in notice of motion No. 3932 of 1998 also dated 21st December, 1998 in paragraph 1A, I have stated as under: 1A. I submit that this hon ble court does not have jurisdiction to entertain, try and dispose of this suit. 3. In connection with the above submissions in the said affidavit, I wish to clarify and state as under : 4. If the company had filed the present suit, the defendants could and would have contended that the jurisdiction of this hon ble court was ousted. Defendants would have relied on AIR 1998 SC 3153 read with section 111A(2) and (3). 5. However, it is Mr. Reddy (Plaintiffs) a shareholder who has filed the suit alleging violation of his civil rights. Such a suit can be filed before a civil court (which has territorial and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Doctor emphasised that the complainant had to make out a prima facie case to justify an interlocutory order. Merely because serious issues were raised, an interim order cannot be passed in favour of the plaintiffs if he fails to make out a prima facie case in their favour. 64. It, therefore, becomes material to go into this question as to whether as a proposition of law, the plaintiffs are required to make out a prima facie case based on legal rights to entitle them for an interim injunction. To justify his submission, Mr. Nariman referred to the leading judgment of House of Lords in the case of American Cyanamid Co. v. Ethicon Ltd. [1975] 1 All ER 504. That was a case involving an action for infringement of right of patent. The House of Lords observed : The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but, the plaintiffs need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case of Dorab Cawasji Warden (supra) in this behalf. 66. Mr. Doctor, the learned counsel appearing for defendant Nos. 4 and 5, submitted that the proposition in American Cyanamid Co. s case ( supra ) was no longer a valid proposition even in England and was not accepted by Indian Courts as well. He referred to a judgment of the Court of Appeal in the case of Hubbard v. Vosper [1972] 1 All ER 1023 which was decided prior to American Cyanamid Co. s case ( supra ) and a judgment subsequent thereto by the Chancery Division in the case of Series 5 Software Ltd. v. Clarke [1996] All ER 853. In Hubbard s case ( supra ), Lord Denning MR in para on Remedies observed as follows : In considering whether to grant an interlocutory injunction, the right course for a judge is to look at the whole case. He must have regard not only to the strength of the claim but also to the strength of the defence, and then decide what is best to be done. Sometimes it is best to grant an injunction so as to maintain the status quo until the trial. At other times it is best not to impose a restraint on the defendant but leave him free to go ahead... The remedy by int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be tried, according to Mr. Nariman, are as follows : ( 1 ) Whether an acquisition in violation of the SEBI Regulations would be void? ( 2 ) Whether a transfer of shares in the register of members in violation of provisions of law would be entertained? ( 3 ) Whether apart from the statutory violations, the plaintiffs had in common law the right to seek the rectification of the share register? ( 4 ) Whether the plaintiffs had a legal personal right to maintain the suit? ( 5 ) Whether the post facto public offer could be made to cure the illegalities committed by the defendants or whether any such post facto offer should include such disputed shares also? ( 6 ) What should be the interpretation of various regulations, particular regulations 6 and 10, the expression holds under regulation 10 and as to whether indirect acquisitions are covered under the concerned regulations? ( 7 ) As to what should be the correct interpretation of persons acting in concert ? ( 8 ) Whether the plaintiffs should be denied the relief on account of the alleged improper conduct on their part or any delay or any improper motive? 69. With respect to various serious questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locutory stage, the Court had to see whether there was a bona fide contention between the parties or a serious question to be involved. In England as well as in India, it appears that the proposition in American Cyanamid Co. s case ( supra ) as placed therein no longer holds goods. The bona fide contention between the parties has to be gone into by the Court. To this extent, the submission of Mr. Doctor is well taken and this Court will have to examine the defence of the defendants prima facie so as to decide whether the plaintiffs are entitled to the interim reliefs that they have prayed. In fact, in a subsequent judgment in the case of Gujarat Bottling Co. Ltd. v. Coca Cola Co. [1995] 5 SCC 545, the Supreme Court has crystallised the law with respect to various aspects to be examined at the interlocutory stage, which very much includes examination of the question as to whether the plaintiffs have a prima facie case. In para 43, the Court observed as follows : 43. The grant of an interlocutory injunction during the pendency of legal proceedings is a matter requiring the exercise of discretion of the Court. While exercising the discretion the court applies the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they were seeking in the present suit. It was submitted that they neither had such a right in common law nor in any statute. As far as the right in common law is concerned it was principally submitted that it was available to the shareholders of a company if they themselves were aggrieved by any particular action on the part of the company concerning there own shares. It was submitted that there was no right in common laws as such to disturb the acquisition of shares made by third parties at the instance of someone who had no stake in those shares. (This submission will be looked into later on in details). However, alternatively and by way of preliminary objection, it was submitted that as far as the rights based in statute are concerned, if there was any such alleged breach of the SEBI Regulations in the light of the interpretation canvassed by Mr. Nariman, it was a matter to be looked into by the authorities concerned, namely, SEBI and that this Court had no jurisdiction to look into it and in any case this Court was not expected to go into the issues which would be competently looked into by the SEBI. The judgment of the Supreme Court in the case of Supreme Court Bar Assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows : ...Punishing a contemner advocate, while dealing with a contempt of court case by suspending his licence to practice, a power otherwise statutorily available only to the Bar Council of India, on the ground that the contemner is also an advocate, is, therefore, not permissible in exercise of the jurisdiction under article 142. The construction of articles 142 must be functionally informed by the salutary purposes of the article, viz., to do complete justice between the parties. It cannot be otherwise. As already noticed in a case of contempt of court, the contemner and the court cannot be said to be litigating parties. (p. 1908) Thereafter in para 45 the Court observed as follows : ...Indeed this court is not a court of restricted jurisdiction of only dispute settling. It is well recognised and established that this court has always been a law maker and its role travels beyond merely dispute settling. It is a problem solver in the nebulous areas but the substantive statutory provisions dealing with the subject of a given case, cannot be altogether ignored by this court, while making an order under article 142. Indeed, these constitutional powers cannot, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities and other organs of the State perform their duties in accordance with law, its role is unexceptionable but it is not permissible for the court to take over the role of the statutory bodies or other organs of the State and perform their functions. (p. 1918) Mr. Nariman submitted that what was being canvassed on behalf of the plaintiffs was that let SEBI exercise the powers within its jurisdiction, but what is that power is something which this Court will have to lay down. The SEBI undoubtedly had the powers to pass appropriate orders including that of directing disinvestment of shares or to permit post facto announcement if deemed appropriate. However, in his submission, in the facts of the present case certain questions had arisen regarding the interpretation of SEBI Act and the regulations which required elucidation of law. What were the powers of the SEBI, and as to what should be the correct interpretation of the SEBI regulations were issues which were clearly within the jurisdiction of this Court. In fact, the regular Courts alone were expected to clarify the parameters of jurisdiction of the Tribunals constituted under various laws. 72. In this behalf, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oversy covered under the Inter-State Water Dispute Act, 1956 it had no jurisdiction to decide the merits of that dispute. Yet the Supreme Court declared in para 12 : The Tribuanl is a statutory authority constituted under the Act made by the Parliament and this court had jurisdiction to decide the parameters, scope, authority and jurisdiction of the Tribunal. It is the judiciary, that is the courts alone that have the function of determining authoritatively the meaning of the statutory enactment and to lay down the frontiers of jurisdiction of any Board or Tribunal constituted under the statute. In that judgment, the Supreme Court quoted with approval the observations of Francis Bennion from his book Statutory Interpretation , wherein he observed : It is the function of the court alone to declare the legal meaning of an enactment. If anyone else (such as the draftsman of the provision) purports to lay down what the legal meaning is the court will tend to react adversely, regarding this as an encroachment upon its constitutional sphere. The Court also quoted with approval the earlier judgment in the case of Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd. [1983] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dada and Mr. Doctor submitted that this can be done by the SEBI itself while resolving the controversy referred to it. 74. In my view, the aforesaid submission of Mr. Nariman is well taken. It is true that SEBI while resolving the dispute before it in exercise of its jurisdiction in a given case may have to arrive at the decision on these points as well, but it will not have the force of an authoritative pronouncement. And it certainly cannot mean that this Court ought not to exercise its lawful function to lay down the frontiers of jurisdiction of the SEBI or interpretation of various concepts which are used in the SEBI Act and regulations. This is not something like an actual exercise of the powers vested in another competent authority under a particular statute. If this Court interprets the concepts involved and lays down the frontiers of jurisdiction of the SEBI, that would be within its powers and something which is expected of this Court. Prima facie , therefore, it cannot be said that merely because this is an area in which SEBI can take a decision while deciding the merits of a case before it, this Court cannot go into and decide these issues involving interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. On the other hand, the defendants relied upon another decision of SEBI in the case of Fascinating Leasing Finance Ltd. (supra) , which held that if an acquirer did not hold any shares earlier, he would not come within the mischief of regulation 10. The indirect acquisitions were not specifically covered in 1994 Regulations and, therefore, the regulations were amended as per the recommendations of the Bhagwati Committee. It is submitted on behalf of the defendants that if something is not specifically spelt out in a regulation, it cannot be read as existing at the relevant point of time. On the other hand, Mr. Nariman submitted that a purposive interpretation will have to be given to the particular clause. He relied upon the judgment of the Supreme Court in the case of Md. Quasim Larry v. Muhammad Samsuddin AIR 1994 SC 1699. That was a case under the Payment of Wages Act, 1936. The earlier definition of wages as incorporated in section 2( vi ) of the Act initially did not specifically cover wages fixed by an award. They were sought to be included by a specific amendment brought in by the Payment of Wages (Amendment) Act, 1957. The question before the Court was as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly are specifically brought in, it cannot mean that such an acquisition was not covered under the definition as it stood earlier when it included the persons with whom the acquirer was acting in concert. If these concepts and regulations are not read purposively, it would be very easy to defeat them. Mr. Nariman submitted that the judgments in the case of Sesa Goa and Fascinating Leasing Finance Ltd. (supra) do not lay down the correct proposition of law and it was, therefore necessary for this Court to lay down the frontiers of jurisdiction of the SEBI in this behalf. On the other hand, it was submitted by the defendants that those judgments were binding on the SEBI with respect to which Mr. Nariman pointed out that the judgment in Fascinating Leasing Finance Ltd. s case ( supra ) had arisen from the order of an Adjudicating Officer, an hierarchy distinct from that of SEBI. But even so assuming that those judgments will have a persuasive force for the SEBI, it cannot certainly be denied to the plaintiffs to canvass in this Court that the interpretation which was adopted in the two cases was defeating the policy underlying the regulations. Mr. Nariman submits that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is the holding in aggregate of a majority of the shares issued by a person or persons acting in concert in relation to the affairs of the company which establishes the existence of a block. It is sufficient, if having regard to their relation, etc., their conduct and their common interest, that it may be inferred that they must be acting together, evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon. (p. 772) 78. In the present case, Mr. Nariman submitted that the entire financing of defendant Nos. 3, 4 and 5 was either through Chhabria Finance Co. or through Mr. Ram Raheja. Mr. Ram Raheja is said to be the husband of sister of Kishore Chhabria, the defendant No. 1. The defendants submit that Mr. Ram Raheja does not come within the definition of the concept of a relative as defined under section 6 of the Companies Act and, therefore, financing done through Mr. Ram Raheja cannot be said to be through a person acting in concert. As against that, Mr. Nariman points out that what should be noted is that regulation 2(1)( d ), which defines persons acting in concert firstly mentions the persons who are comprised in that concept and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne which the acquirer has already purchased. It is at the time of the second lot of purchases that the acquirer is told that by virtue of those purchases if his holding is going to be more than 10 per cent, he shall have to make a public announcement of offer. This public announcement will undoubtedly lead him to buy some more shares which is the third lot as provided under regulation 21(2), namely, that he shall offer to buy from the public an aggregate minimum of 20 per cent of the total shares of that company. He has to buy this third lot in competition with any party which may give a competitive bid on his making the public offer. In the event, the public announcement is not made (in spite of the likelihood of one s shareholding going above 10 per cent due to these purchases in the second lot), there is no occasion for a third party to give a competitive bid and the purchases of this second part would get tainted and would be void. 80. The submission of the defendants is that as far as the second lot of acquisitions under regulations 9 and 10 is concerned, it is something which is either acquired through negotiations or from market and this provision is done to facilitate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagements. As against that, as stated earlier, in the submission of Mr. Nariman, the protection of investors as also transparency in the transactions is an equally important objective to be attained through these regulations. Clandestine acquisition are not acquisitions which are supported under the regulations. If that was not so, there was no need to provide a negative covenant by using the expression unless in regulations 9 and 10 to provide that at the time an acquirer goes for the second lot of shares purchases if his holding goes beyond 10 per cent, he shall have to make a public announcement. All these competing submissions on rival sides require a careful consideration and the learned counsel on both the sides have relied upon a number of authorities in support of their submissions to canvass as to what should be the correct approach towards these regulations in the facts of the present case. 21-4-1999 81. Mr. Nariman submitted that SEBI had all throughout maintained that the acquisitions made by the defendants were in breach of the regulations and this was reflected in the three notices that were given from time to time. It cannot be said that SEBI had changed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of shares to surreptitiously increase their shareholdings without making a public announcement and this would certainly be to the detriment of the investors. The disputed shares were admittedly acquired in open market without making public announcement and were admittedly from a common source of funds. That ought to lead one to the inference as in East Coast Commercial Co. Ltd. s case ( supra ) that the persons concerned were acting in concert and were covered under the mischief which was sought to be suppressed under the regulations. Mr. Nariman pointed out that from time to time SEBI had sought for information and the documents with respect to the source of funds. This can be seen from SEBI s letter dated 8-5-1998. The information sought for was not given to SEBI but was submitted much later in this Court including the information that the decisions to invest monies in defendant Nos. 3, 4 and 5 companies were made on the advice of the chartered accountant one Mr. A.T. Kukreja. Incidentally, this Mr. Kukreja apart from being the auditor of defendant No. 3 was admittedly a director of two of the other group companies, namely, Darrel and Stingray (defendant Nos. 8 and 9 he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. To advance his submission that wording in regulations 9 and 10 was a mandatory requirement, Mr. Nariman relied upon the judgment of the Supreme Court in the case of Mannalal Khetan v. Kedar Nath Khetan AIR 1977 SC 536. That was a case under section 108 of the Companies Act and a dispute had been raised that the transfer of shares in the company s register had been made illegally and without authority because no proper instruments of transfer duly stamped and executed were delivered to the respondent-company. The relevant part of section 108 as it then stood reads as follows : Transfer not to be registered except on production of instrument of transfer. -A company shall not register a transfer of shares . . . unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee. . . has been delivered to the company along with the certificate relating to the shares or debentures. . . or if no such certificate is in existence, along with the letter of allotment of the shares. . . . In para 16, the Court observed that negative language is worded to emphasise the insistence of compliance with the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orceable. (p. 539) 85. Similar is the approach of the Privy Council in the case of Moti Chand v. Ikran Ullah Khan AIR 1916 PC 59 wherein the Privy Council laid down some of the guidelines with respect to the approach the Courts ought to take with respect to a legislation like the tenancy law (Agra Tenancy Act in that case). The judicial committee observed in that matter as follows : The policy of the Act is not to be defeated by any ingenious devices, arrangements, or agreements between a vendor and a vendee for the relinquishment by a vendor of his sir land or land which he has cultivated continuously for twelve years at the date of the transfer; for a reduction of purchase money on the vendor s failing or refusing to relinquish such lands; or for the vendor being liable to a suit for breach of contract on his failing or refusing to relinquish such lands. All such devices, arrangements, and agreements are in contravention of the policy of the Act and are contrary to law and are illegal and void, and cannot be enforced by the vendee in any civil court or in any Court of Revenue. In McDowell Co. Ltd. v. Commercial Tax Officer AIR 1986 SC 649, while dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een issued to restrain the bank from performing the bank guarantee and that was sought to be justified on the ground that it was not sought against the bank but against the appellant. The Court negatived the contention by observing : In the instant case, the learned judge has proceeded on the basis that this was not an injunction sought against the bank but this was an injunction sought against the appellant. But the net effect of the injunction is to restrain the bank from performing the bank guarantee. That cannot be done. One cannot do indirectly what one is not free to do indirectly. (p. 293) Submission on behalf of defendant Nos. 1 to 11 87. The aforesaid submission of Mr. Nariman was countered by Mr. Doctor appearing for defendant Nos. 4 and 5 Mr. Nariman had relied upon the above referred judgment in the case of Mannalal Khetan ( supra ) Mr. Doctor referred to para 19 of that judgment and emphasised that all that was laid down was that if a contract was made to do a prohibited act, the same would be unenforceable. He submitted that the question as to whether the contracts entered into in the present case were for doing prohibited acts was itself a doubtful p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that those cases were filed by the parties to the transaction and yet the contracts were not avoided. In the instant case, the parties who had transferred their shares to defendant Nos. 3 to 5 were not aggrieved by those transfers and had not challenged those transfers. The suit was by an absolute third party and the transferors were not even joined as party defendants. The share disputed in the present matter were already transferred and registered, particularly 10,39,091 shares purchased by defendant No. 3 (IMFA) and 4,72,250 shares purchased by defendant No. 4 (Mahameru). In a case like this, the only option available at the highest was to go for a post facto permission to make the public announcement and the question of prosecution for the alleged breaches could be looked into subsequently. Mr. Doctor again stressed that it was only because of the intervention of the plaintiffs and the former chairman of the Committee of SEBI on their behalf that SEBI was changing its stand. He submitted that once the title in the shares had passed into the hands of the concerned defendants, SEBI cannot direct them to disinvest these shares. He, therefore, submitted that if the prayer that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re concerned, he submitted that they were purchased in the year 1997 after the 1997 Regulations came into force and under regulation 11(1) of the 1997 Regulations, the acquisition up to 2 per cent were not hit. He submitted that 54,000 shares would be just 0.56 per cent which would mean permissible acquisitions. He also submitted that defendant Nos. 3 to 5 could be considered as related companies when one considers the definition of being related under the Companies Act. The learned counsel relief upon the judgment of Lord Denning in the case of Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155, wherein it was observed that the role of the court while interpreting was only to erase the creases and not to weave a new fabric . It was submitted that the interpretation which was sought to be placed by Mr. Nariman, namely, to bring in indirect acquisition to widen the definition of holding to include those who were not holding any shares would amount to weaving a new fabric in the language of Lord Denning. In Seaford Court Estates Ltd. s case ( supra ), Lord Denning observed as follows: A judge should ask himself the question how, if the makers of the Act had themse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 was primarily concerned with takeover and it formed a part of the Chapter which was titled as takeover . He submitted that the plaintiffs were not concerned as to whether the transferors like defendant Nos. 3 and 4 should get their dividends on the shares which were transferred to them. What they were concerned with were the voting rights flowing therefrom and in the context of the Regulations, that part of the contract had not been executed as well. He further submitted that regulation 20(4) of the regulations also indicates that the substantial acquisition is inextricably linked with the takeover. This is because the regulation provides that the directors of the company, of which the shares are being acquired are prohibited from selling or disposing of assets except in the ordinary course of the business during the offer period. This is, however, subject to a further exception of approval of the shareholders being granted in the general body. Thus, this is a kind of provision which requires the directors of the company to maintain a status quo once they were notified that bulk shares have been acquired and are being acquired for the purposes of takeover of the company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit the transferee or any nominee or proxy of the transferee, to exercise any voting or other rights attaching to such share or block of shares; and ( b )where the transfer of such share or block of shares has not been registered, not to permit any nominee or proxy of the transferor to exercise any voting or other rights attaching to such share or block of shares. 94. Basically the right to vote is a statutory right given under section 87 of the Companies Act to the persons who are originally on the register. If the transfer of shares to any person is in contravention of any of the provisions of the SEBI Act and the regulations made thereunder, the company can be directed to rectify the register even under the provisions of section 111A(3) of the Companies Act, though that power is retained to the CLB. The CLB is also given the power to suspend voting rights during the pendency of the inquiry under sub-section (4) of section 111. Thus the violation of the provisions of the SEBI Regulation is a ground on which the right to vote can be curtailed as provided in the Act itself. Mr. Nariman, therefore, submits that there is nothing sacrosanct as such with respect to right to vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if regulations 9 and 10 expect a particular conduct from the incoming party and if the Regulations are worded in a negative manner, in the event they are not read to give full effect to their simple meaning, the regulations will be rendered redundant. If the public announcement part is taken away as a necessary requirement in regulations 9 and 10, the result of it would be that without making the announcement, shares will be purchased in bulk and SEBI will be requested that if at all there is any grievance, post facto announcement be permitted. It is seen very often that when shares are purchased in bulk and particularly with a view to takeover the company, the result thereof is to dislodge the existing management. This is not something which any existing management is likely to appreciate unless it is prepared to make an exit. This being so, more often the incoming parties are likely to buy such shares by different devices which would not be easily known. It is only to avoid such things from happening and to bring in transparency in these transactions that this provision has been made which is in the interest of the investors, incoming party as well as the existing management. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Code of Civil Procedure, the plaintiffs cannot make their case good. Besides, unless the plaintiffs state clearly as to what they are alleging, the defendants will face all the difficulties in defending the proceedings. This is apart from the fact that it would be against the principles of natural justice. Mr. Manohar submitted that when an action in concert is alleged, it implies an element of conspiracy or fraud which will require a meeting of minds. It is, therefore, necessary under the provisions of order 6, rule 4, of the Code of Civil Procedure that the nature of the agreement and its particulars such as date, time, the parties between whom it was entered into and the place where it was entered into, etc., will have to be pleaded so as to constitute a valid pleading so that the relief can be granted. He submitted that a positive and precise case has to be made out and that very case is to be put and one is not permitted to substitute and prove something else. He further submitted that fraud and conspiracy are like any other charge in a criminal proceeding and it has to be established beyond reasonable doubt and finding as to fraud cannot be based on suspicion and conjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd criminal activities and his character, are only there to lend colour to the genuineness of the belief said to have been engendered in Ghughuli Rai s mind that the threat of death administered to him was real and imminent. But as regards the threat itself, there is not a single particular. We do not know the date, time and place in which it was administered. We do not know the circumstances we do not even know who did the threatening. Now when a Ct. is asked to find that a person was threatened with death, it is necessary to know these particulars, otherwise, it is impossible to reach a proper conclusion. (p. 283) In the same line of proposition, Mr. Manohar cited the following judgments: (1) Bijendra Nath Srivastava v. Mayank Srivatava [1994] 6 SCC 117 (Para 13); (2) Svenska Handelsbanken v. Indian Charge Chrome JT 1993 (6) SC 189 (paras 45 46)/; (3) Omar Saley Mohd. v. IT Commissioner AIR 1959 SC 1238 (para 26); Varanasaya Sanskrit Vishwavidyalaya v. Dr. Rajkishore Tripathi AIR 1977 SC 617 (paras 8 and 9); (5) Abubakar Abdul Inamdar v. Harun Abdul Inamdar AIR 1996 SC 112 (para 5) and (6) D.M. Deshpande v. J.K. Kadan [1998] 8 SCC 315 (paras 9 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , upon such terms as the court thought fit to impose, amended his petition by including therein full particulars of the allegations which he intended to prove. Such cases as the present will be much simplified if this practice is strictly observed and insisted upon by the court, even if as in the present case, no objection is taken on behalf of the parties who are interested in disproving the accusations. (p. 189) 100. Thereafter, Mr. Manohar pointed out a number of contradictions in the plaint. He pointed out that opening part of para 4 of the plaint essentially makes an allegation against defendant No. 1 and not against defendant No. 11. It alleges that between May 1995 and May 1997 defendant No. 1 through defendant Nos. 2 to 5 has acquired shares in contravention of law as detailed in sub-paragraphs of para 4. Thereafter, para 4( a ) makes an allegation that defendant No. 2 has acted in concert with defendant Nos. 1 and 3 to 11 on 14-12-1993 to acquire 75,000 fully convertible debentures. Mr. Manohar pointed out that defendant No. 4 company was not in existence in December 1993. It was born on 2-2-1994. Similarly, defendant No. 5 was born on 19-8-1996. This being the posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull Bench of the Nagpur High Court in the case of Vinayak Shamrao v. Moreshwar Ganesh Padhe AIR 1944 Nag. 44, wherein Bose, J., observed as follows: . . . What he ( i.e., Polock J.) did was to hold that the appellate court had not realised the difference between a real and a sham transaction and that though its finding purported to uphold the finding of the first court to the effect that the transaction was sham his reasoning indicated that he had not the distinction in mind. In this I am of the opinion the learned Judge was justified. The lower appellate court says in the passage I have quoted that the transaction was bogus and liable to be set aside under section 53, T.P. Act. Now a bogus transaction is one which is not intended to have legal effect. It is a pretense and has no actual legal existence. Consequently there is nothing to set aside. Only real transactions intended to have effect can be set aside. Section 53, T.P. Act, speaks of fraudulent transfers and so indicates that it is dealing with real transactions and not sham ones; see as to this ILR (1943) Nag. 42 at p. 55. Therefore, when the learned Judge of the lower appellate court in one and the same breath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of Mr. Manohar and Mr. Doctor by stating that the plaint was lacking in particulars of the allegations. He pointed out that the plaint had been amended twice and inspite of that it was insufficient in facts. He referred to the judgment of the Supreme Court in the case of Union of India v. Pandurang Kashinath More AIR 1962 SC 630. In that matter, inspite of time being granted to mend the pleadings, the opportunity was not availed of. The court observed in para 10 It is well unknown that when an improper conduct is alleged it must be set out with all particulars . The court quoted with approval the observations in Wellingford v. Mutual Society [1880] 5 AC 685 (QB), which are to the following effect: With regard to fraud, if there be any principle which is perfectly well settled, it is that general allegations, however, strong may be the words in which they are stated, are insufficient even to amount to an averment of fraud of which any court ought to take notice. Thereafter in para 11 it is stated that In the absence of the particulars all that the opposite side could do would be simply to deny that there had been discrimination. . . 104. As against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1738) 105. Mr. Manohar had canvassed that the allegation of concerted action must be proved beyond reasonable doubt and relied upon the judgments in the case of A.L.N. Narayanan Chettiyar ( supra ) and Svenska Handel-sbanken ( supra ) amongst others. Another judgment in this line is one in the case of Union of India v. Chaturbhai M. Patel AIR 1976 SC 712. The judgment in the cases of Svenska Handel-sbanken ( supra ) and the one in Chaturbhai M. Patel s case ( supra ) are judgments by two Judges. As against that, Mr. Nariman relied upon the judgment of the Supreme Court in the case of Bhagwati Prasad v. Chandramaul AIR 1966 SC 735 and the judgment of the Constitution Bench in Gulabchand s case ( supra ) which is a judgment of five Judges. It had overruled the observations of Woodrroffe, J., In Western s case ( supra ) favouring the contrary view. Mr. Nariman also relied upon the judgment of the Supreme Court in the case of Dr. N.G. Dastane v. Mrs. S. Dastane AIR 1975 SC 1534 which is a judgment of three Judges Bench. In para 25 thereof, the court held that proof beyond reasonable doubt is proof by a higher standard which generally governs criminal trial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r conduct and their common interest, that it may be inferred that they must be acting together, evidence of actual concerted action is normally difficult to obtain, and is not insisted upon . The submission of Mr. Nariman was that it would be order 6, rule 10, of the Code of Civil Procedure which would govern the field. He submitted that the plaintiffs were pressing into service the inference that should be drawn with respect to meeting of minds and the fraudulent intention of the defendants. That was not something within the knowledge of the plaintiffs. The plaintiffs have given the particulars to the extent that were available to them, but lack of very precise particulars in this set of facts cannot lead to the plaint being rejected by applying the strict standard of order 6, rule 4, of the Code of Civil Procedure. 107. It is true that there are many formalities expected when one comes to the particulars in the plaint. However, it cannot be ignored that the plaintiffs have sought to rely upon the declaration made by defendant Nos. 1 to 11 themselves which are annexed to the plaint. They are relying upon the show-cause notices which are issued by SEBI firstly to Ram Raheja, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desirable to place undue emphasis on form. He then referred to a judgment of a Division Bench of this court (per Chagla, CJ.) in Lady Dinbai Dinshaw Petit v. Dominion of India AIR 1951 Bom. 72, wherein it was held that when the allegation relates to the state of mind or intention of the other part, it is sufficient to state the same as material fact though the circumstances from which it can be inferred may not be said. In para 8 the court observed: When an allegation of fraud is made, the party alleging the fraud is in possession of the particulars of the fraud practised upon him. Fraud in such a case is an objective fact known to the party complaining of it, and in such a case the law requires that particulars of such an objective fact must be given. Similar is the case with breach of trust, wilful default, or undue influence or misrepresentation, all covered by the provisions of order 6, rule 4. But when a party is complaining of a state of mind of the other party and making a grievance of that state of mind, it is impossible to expect that party to give particulars of something which is subjective as far as the other party is concerned, and the law has taken notice of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la, CJ. in Lady Dinbai Dinshaw Petit s case ( supra ) making a distinction between the provisions of order 6, rule 4, and rule 10, is quite apt and applies with full force in the facts of the present case. The plaintiffs cannot be expected to give the particulars of time, date and place where the defendants arrived at the concerned design or as to which of the directors of these companies had entered into this conspiracy. This is a civil suit, wherein an inference based on probabilities is pressed into service. Whatever particulars are necessary to lay the foundation have to be given and they are given in the facts of the present case as required, and then an inference is sought to be pressed into service which is permitted by order 6, rule 10. The plaint cannot, therefore, be faulted as defective on this ground of the alleged lack of particulars. Similarly as far as the standard of proof is concerned, as held in Gulabchand s case ( supra ), this being a civil suit, the ordinary rules applicable to civil cases will apply and it cannot be converted into a criminal case. One will have to strike the balance and decide the matter on probabilities although keeping in mind the presum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the power of relaxing the quota rule conferred on the controlling authority. Once there is power to relax the mandatory quota rule, the appointment made in excess of the quota from any given source would not be illegal or invalid but would be valid and legal as held by this court in N.K. Chouhan v. State of Gujarat [1977] 1 SCR 1037.... (p. 1033) He then relied upon the judgment of the Supreme Court in the case of Banarsai Das v. Cane Commissioner AIR 1963 SC 1417. In that case also, there was a mandatory provision and penal consequences. The Supreme Court quoted the relevant paragraph of Maxwell on Interpretation of Statutes in para 18 to observe that the whole scope and purpose of the statute under consideration has to be seen and then in para 22 observed as follows: 22. In the present case the form prescribed set out a number of conditions and these have all been incorporated in the agreement which has been executed by the society. In other words the form has been used. There is no deviation from the prescribed form except in respect of the three defects which we have mentioned earlier. We have pointed out that the failure to execute the agreement in the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for infringement are imposed it is not legitimate to stretch the language of a rule, however, beneficent its intention. Beyond the fair and ordinary meaning of its language. I quote and adopt the words of Aleson B : The rule of law, I take it, upon the construction of all statutes. . . . is, whether they be penal or remedial, to construe them according to the plain, literal and grammatical meaning of the words in which they are expressed, unless that construction leads to a plain and clear contradiction of the apparent purpose of the Act, or to some palpable and evident absurdity. (p. 295) In the same report, the court observed : If there are two reasonable constructions we must give the more lenient one. That is the settled rule for construction of penal sections. (p.313) 112. Mr. Manohar then relied upon the judgment of the Supreme Court in the case of Tolaram v. State of Bombay [1955] 1 SCR 158, wherein the Supreme Court also reiterated the same proposition and referred to the above judgment : The question that needs our determination in such situation is whether section 18(1) makes punishment, receipt of money at a moment of time when the law h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry more than ten per cent of the voting rights, unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with these regulations. The plaintiffs want to read the regulation by deleting the bracketed portion above and by adding the words if any . It would then read as under : 10(1) An acquirer shall not acquire any further shares in the company from the open market which when taken together with his existing shareholding if any would carry more than ten per cent of the voting rights, unless such acquirer makes a public announcement of intention to acquire shares in the open market in accordance with these regulations. Mr. Manohar submitted that it is only if such a course is permitted that the plaintiffs can succeed in the present motion. 114. Mr. Manohar drew my attention to be observations of Lord Denning in the case of Seaford Court Estates Ltd. ( supra ) which were further elucidated by the Supreme Court in para 11 of Union of India v. Sankal Chand Himatlal Sheth [1977] 4 SCC 193 as follows : 11. The normal rule of interpretation of a statute is that the words used by the Legislature are gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e straightened it out. I may only add, though even that does not apply, that Lord Denning wound up by saying, may be not by way of recanting, that a Judge must not alter the material of which the Act is woven, but he can and should iron out the creases . (p.215) He drew my attention to the following observations of the Privy Council in the case of Crawford v. Spooner [1846] 6 Moore PC 1. This is what the Privy Council has held : Their Lordship are clearly of opinion that the judgment of the court of Bombay cannot stand. The construction of the Act must be taken from the bare words of the Act. We cannot fish out what possibly may have been the intention of the Legislature ; we cannot aid the Legislature s defective phrasing of the Act ; we cannot add, and mend and by construction, make up deficiencies which are left there. If the Legislature did intend that which it has not expressed clear ; must more, if the Legislature intended something very differently ; if the Legislature intended something pretty nearly the apposite of what is said, it is not for judges to invent something which they do not meet with in the words of the text (aiding their construction of the text ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the fact that loans and finances were given was not disputed by the plaintiffs as can be seen form Mr. Reddy s affidavit. He further emphasised that it was not the plaintiffs case that these transactions of the investment companies were their solitary transactions or that they were floated only for these transactions. Mr. Manohar submitted that in fact they were having other transactions as well. He further submitted that if defendant Nos. 3 to 5 had any collusion with defendant No. 11, it was inconceivable that defendant No. 11 would takeover those companies even before throwing out Vijay Mallya from the management of Herbertsons. He could have very well permitted the shares to Lie and Park with defendant Nos. 3 to 5 who obviously would have voted in fovour of defendant No. 11. 116. Then turning to the declaration made in April 1997, Mr. Manohar submitted that the declarations will have to be read with the letter dated 2-4-1998 which explained the stand of the defendants. Those declarations were made within 2 months of the 1997 regulations coming into force. They will have to be read in that context. Mr. Manohar emphasised the dicta of the Supreme Court in Prem Ex-Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M.D. Chhabria, leave aside any of the directors of defendant Nos. 3 to 5. Mr. Manohar, therefore, submitted that under section 111A(5) read with sub-section (6) thereof, a transferee was entitled to vote. A free transferability of shares was coupled with right to vote and hence the right of defendant No. 3 should not be curtailed in any manner whatsoever. 119. It is not possible to accept the above submission of Mr. Manohar concerning the negative mandatory language of Regulation 10. He has relied upon the judgment of the Supreme Court in the case of G.S. Lamba (supra) which was a service matter and the proposition in that matter is in the context of relaxing the service quota. The proposition, viz., that once there is a power to relax the mandatory quota rule, the appointments made in excess of quota will not be illegal is for recognising the reality of break down of quota in the area of service promotions. The proposition is evolved to see to it that persons promoted due to service exigencies are not unnecessarily made to suffer for no fault of theirs. The proposition made in that context can certainly not be imported while dealing with the mandatory requirement of publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lodged or transferred. In fact, in the second suit filed by the defendants, in para 18 they have taken the same stand. He however, submitted that independent of that, a member may be a holder of shares but a holder may not be a member. This wider approach was adopted by the Supreme Court in the case of Worldwide Agencies (P.) Ltd. v. Margaret Desor [1990] 67 Comp. Cas. 607. The Court had approved the judgment of a Single Judge of Calcutta High Court in the case of Kedar Nath Agarwal v. Jay Engg. Works Ltd. [1963] 33 Comp. Cas. 102 wherein the Court held : There is a material difference between the provisions of the older Companies Acts and regulations and those of section 81 of the Act of 1956. Previously where increase of capital was proposed by issue of further shares such shares had first to be offered to the members . The Act of 1956 prescribes that they shall be offered to the persons who at the date of the offer are holders of the equity shares of the company. A member may be a holder of shares, but a holder may not be a member . A person whose name is on the register may have sold his share and from the moment his property in the share has passed to his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Nariman, therefore, rightly submitted that the report of Justice Bhagwati Committee could not be pressed into service to decide as to what should be the interpretation of 1994 Regulations. They will have to be interpreted purposefully by looking into the objective for which they are made. Regulation 10 will have to be held mandatory and the term holds will have to be interpreted to cover those purchasers of shares whose shares have not been lodged or transferred. 123. It is not possible to accept the submission of Mr. Manohar that the fact that certain provisions were specifically made in the 1997 Regulations to widen their coverage, clearly establishes that the coverage under the 1994 Regulations was a narrow one. Now, in this connection, it cannot be lost sight of that these Regulations are for the benefit of the shareholders, companies and society at large and hence while interpreting them one will have to adopt the purposive approach as done by the Supreme Court in Md. Quasim Larry s case ( supra ) on Industrial Disputes Act. Indirect acquisitions can not be read as outside the 1994 Regulations or else the Regulations will be frustrated. Similarly, for the same r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As can be seen from the legislative history of Companies Act, the earlier provisions, namely, section 23 of the Companies Act, 1857, section 34 of the Companies Act, 1866 and section 58 of the Companies Act, 1882 dealing with rectification were partly retained and partly altered in the Companies Act, 1913. Section 38 of the Companies Act, 1913 gave a power to the Court to rectify the register at the instance of the aggrieved person or any member of the company. An application was to be filed for this purpose and under sub-section (3) of section 38, on an application being made, the Court could decide the question relating to title also, though, however, in the proviso thereof, it was provided that when any questions of law were raised, the Court may direct the issue to be tried. This section 38 reads as follows : 38. Power of court to rectify register. -(1) If, ( a )the name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members of a company; or ( b )default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member, the person aggrieved or any member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hable with fine which may extend to fifty rupees for every day during which the default continues. (3) The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may, where the company is a public company or a private company which is a subsidiary of a public company, appeal to the Central Government against any refusal of the company to register the transfer or transmission, or against any failure on its part, within the period referred to in sub-section (2), either to register the transfer or transmission or to send notice of its refusal to register the same. (4) An appeal to the Central Government under sub-section (3) shall be made- ( a )in case the appeal is against the refusal to register a transfer or transmission, within two months of the receipt by him of the notice or refusal; and ( b )in case the appeal is against the failure referred to in sub-section (3), within two months from the expiry of the period referred to in sub-section (2). (5) The Central Government shall, after causing reasonable notice to be given to the company and also to, the transferor and the transferee or, as the case m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In either case, the court in its discretion may make such order as to costs as it thinks fit. (3) On any application under this section, the court- ( a )may decide any question relating to the title of any person who is a party to the application to have his name entered in or omitted from the register, whether the question arises between the members or alleged members, or between members or alleged members on the one hand and the company on the other hand; and ( b )generally, may decide any question which is necessary or expedient to decide in connection with the application for rectification. (4) From any order passed by the court on the application, or on any issue raised therein and tried separately, an appeal shall lie on the grounds mentioned in section 100 of the Code of Civil Procedure, 1908 (Act 5 of 1908)- ( a )If the order be passed by a District Court, to the High Court; ( b )If the order be passed by a Single Judge of a High Court consisting of three or more Judges to a Bench of that High Court. 128. Thereafter with effect from 31-5-1991 by the Amendment Act No. 65 of 1960, sections 111 and 155 were amended as follows : 27. Amendment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the register of debenture holders as they apply in relation to the rectification of the register of members. 129. On 17-1-1986 the Securities Contracts (Regulation) (Amendment) Act, 1985 came into force which inserted new section 22A to emphasise free transferability and registration of shares and making provision with respect to the circumstances wherein transfer of shares may be declined. Under sub-section (3)( c ) thereof, the power to decline transfer of shares on the ground of its likely change in composition of the Board of directors was specifically provided. There was also a provision for a reference to the CLB. The said section 22A, which came into force on 17-1-1986, reads as follows : Free transferability and registration of transfers of listed securities of companies. -(1) In this section, unless the context otherwise requires,- ( a ) company means a company whose securities are listed on a recognised stock exchange; ( b ) security means security of a company, being a security listed on a recognised stock exchange but not being a security which is not fully paid-up or on which the company has a lien; ( c )all other words and expressions used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed particulars and shall be accompanied by the instrument of transfer of the securities to which it relates, the documentary evidence, if any, furnished to the company along with the instrument of transfer, and evidence of such other nature and such fees as may be prescribed. (6) On receipt of a reference under sub-section (4), the Company Law Board shall, after causing reasonable notice to be given to the company, and also to the transferor and the transferee concerned and giving them a reasonable opportunity to make their representations, if any, in writing by order direct either that the transfer shall be registered by the company or that it need not be registered by it. (7) Where on a reference under sub-section (4), the Company Law Board directs that the transfer of the securities to which it relates- ( a )shall be registered by the company, the company shall give effect to the direction within ten days of the receipt of the order as if it were an order made on appeal by the Company Law Board in exercise of the powers under section 111 of the Companies Act, 1956; ( b )need not be registered by the company, the company shall, within ten days from the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, within four months from the date on which the instrument of transfer, or the intimation of transmission, as the case may be, was delivered to the company. (4) If- ( a )the name of any person- ( i )is, without sufficient cause, entered in the register of members of a company, or ( ii )after having been entered in the register, is, without sufficient cause, omitted therefrom; or ( b )default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be, a member including a refusal under sub-section (1), the person aggrieved, or any member of the company, or the company, may apply to the Company Law Board for rectification of the register. (5) The Company Law Board, while dealing with an appeal preferred under sub-section (2) or an application made under sub-section (4) may, after hearing the parties, either dismiss the appeal or rejected the application, or by order- ( a )direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order; or ( b )direct rectification of the register and al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (12) If default is made in complying with any of the provisions of this section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which the default continues. (13) Nothing in this section and section 108, 109 or 110 shall prejudice any power of a private company under its articles to enforce the restrictions contained therein against the right to transfer the shares of such company. By that very Amendment Act No. 31 of 1988, sections 155 and 156 of the Principal Act were omitted. Then by the Depositories Ordinance No. 11 of 1995, which came into force on 20-9-1995, a new sub-section (14) was added to section 111 whereby the provisions of section 111 were restricted to the private companies. This added sub-section (14) reads as follows : (14) In this section company means a private company and includes a private company which had become a public company by virtue of section 43A of this Act. 131. Then an entirely new section 111A was included to govern the field of public companies. This new section provided for rectification of register on transfers in certain manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns read as follows : Addition to sub-section (2) : Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board and it shall direct such company to register the transfer of shares. Substitution of sub-section (3) by the following : (3) The Company Law Board may, on an application made by a depository, company, participant or investor or the Securities and Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992), or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), or any other law for the time being in force, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or the intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Gordhan Spg. Mfg. Co. 19 Bom. LR 982 in similar circumstances a petition under section 38 was regarded as proper. In Ramesh Chandra Mitter v. Jogini Mohan Chatterjee [1920] 47 Cal. 901, it was observed In a simple case where an immediate rectification is essential, it may be desirable to apply under that section; but if the case is at all complicated, an action should be brought . Srinivasa Ayyangar, J., then in this leading judgment observed on behalf of the Division Bench as follows : I respectively agree entirely with those observations. If the principle is that the provisions contained in and the procedure prescribed by a certain enactment are exhaustive and it should be open to parties to seek for such reliefs in regular actions only to cases where the enactment can be said to create entirely a new sphere of rights and obligations, it becomes important to discuss the question in this case whether the Indian Companies Act must, having regard to its true nature, be regarded as an Act creating such a new sphere or as merely legislating for or regulating certain rights recognised under the common law. It seems to me that the true and correct view would be to regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amandir (P.) Ltd. [1960] 30 Comp. Cas. 141 . In that matter, the Court held that complicated questions of fabrication and forgery were involved. The Court took the view that a petition under section 155 was not the correct remedy therefor but a suit would be the proper remedy. The Court observed that filing a suit for rectification is not unknown and is generally resorted to where rights of third parties are concerned . In the case of Jayashree Shantaram Vankudre ( supra ), the Court referred with approval to an earlier judgment in the case of Matheran Steam Tramway Co. v. B.N. Lang [1931] 1 Comp. Cas. 206 (Bom.) wherein a suit was preferred to a summary action. The Court quoted with approval the following observations from Volume VI of Halsbury s Laws of England : The application may be made by the person aggrieved. . . . It may be by motion or summons or by action commenced by writ. If the court thinks that the case, by reason of its complexity or on the ground that there are matters requiring investigation or otherwise, could more satisfactorily be dealt with by an action, the court will decline to make an order on a motion, without prejudice to the right of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany law, then the remedy in that law alone had to be followed. The learned Judge referred to the judgment of the Supreme Court in the case of Premier Automobiles Ltd. v. Kamlakar Shantaram Wadke AIR 1975 SC 2238, arising under the Industrial Disputes Act, 1947. Reliance was also placed on a well known passage in the case of Wolverhampton New Waterworks Co. v. Hawkesford [1859] 6 CB (NS) 336 which was also referred to before the Supreme Court in Premier Automobiles Ltd. s case ( supra ). Thereafter the learned Judge posed a question as to whether the rights and obligations in question in that particular case owed their very creation to the Companies Act or whether they were traceable to a basic contract which had come to be statutorily regulated. The learned Judge went into the historical background of the amendments to the company law and finally held that right to file a suit was a common law right available to the parties. 137. Mr. Chidambaram, the learned counsel appearing for the defendant No. 11, submitted that these cases do not lead the plaintiffs any further. They were all cases which are related to the plaintiffs own shares in respect of which the plainti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s position had been clarified in State of Orissa v. Krishna Stores [1997] 3 SCC 246, wherein para 13 the court observed : In the case of State of Madras v. Madurai Mills Co. Ltd. , this court, however, observed that the doctrine of merger was not a doctrine of rigid and universal application. The application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provision conferring the appellate authority has applied its mind to the original order or any issue arising in appeal while passing the appellate order, one should be careful in applying the doctrine of merger to the appellate order. 139. That apart, Mr. Nariman submitted that the judgment in Gojer Bros. (P.) Ltd. s case ( supra ) could not be cited as a proposition that even if a part of the judgment of a trial court is not reversed, that would not be binding as a proposition of law. What we are concerned here is as to whether the observations of Bharucha, J (as he then was in this Court) with respect to individual shareholder s right in having a correct register of members any longer holds the field. Mr. Nariman in this behalf referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erior court would continue to remain intact and biding on subordinate and co-ordinate Bench. The Court observed in para 12 as follows : . . . Mr. Nanavati tries to justify this submission by propounding the principle that, when a decision of one court is reversed in appeal by another court, then the decision of the appellate court gets substituted to the decision of the other court and the decision so reversed has no legal existence. We are unable to agree that any such principle is applicable for determining the binding nature of a decision of a court. The principle, undoubtedly, applies vis-a-vis decrees of the higher and the lower courts. It may apply to the decisions of the same two courts on the identical questions. But, it is difficult to uphold the contention that any such principle is applicable in regard to a part of the judgment solemnly pronounced by a court which has not been overruled and kept expressly open by the appellate court. The binding nature of a decision arises from the fact that the point of law raised and considered therein has been decided by the court concerned and it is obvious that so long as that decision remains intact, it is binding on all cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as aforesaid the Delhi High Court in the case of petitioner company relying on Public Passengers Service Ltd. AIR 1966 SC 489 ( supra ) held that the jurisdiction of the court under section 155 is summary in nature. 13. In Public Passengers Service Ltd. ( supra ), this court held by reasons of its complexity or otherwise the matter can more conveniently be decided in a suit, the court may refuse relief under section 155 and relegate the parties to a suit. 14. Learned counsel for the appellant initially made feeble submission as aforesaid to hold that the decision in Public Passenger Service Ltd. ( supra ) case is per incuriam . We have no hesitation to reject such a submission. This issue was directly there and was considered with respect to the interpretation of section 155 and was a case not under 1913 Act but 1960 Act hence by no stretch of imagination it could be said that the said decision is per incuriam . . . . (p. 3157) 141. The learned counsel appearing for the defendants tried to impress upon me by relying different passages from the judgments of the Supreme Court in Ammonia Supplies Corpn. (P.) Ltd. s case ( supra ) to contend that the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Om Prakash Berlia s case ( supra ), the remedy of seeking rectification of company s register by way of filing of a suit is a right recognised in common law and translated into the statutes. That would be available where the matter can be more conveniently decided in a suit by reason of its complexity or otherwise as held by the Apex Court in Public Passenger Services Ltd. s case ( supra ) and confirmed in Ammonia Supplies Corpn. (P.) Ltd. s case ( supra ). It is also clear from the observations of Bharucha, J. in Om Prakash Berlia s case ( supra ) quoted above that this right is available to see to it that the share register reflects the true composition, and the shareholder cannot be told that he is not an aggrieved person vis-a-vis an entry in the register which is bad or illegal. This is so, since it affects his rights ( i ) to receive his due share in the profit by way of dividend, ( ii ) his right to exercise his vote, and ( iii ) to have it correctly assessed against the votes of other rightful shareholders. What is the change brought about by section 111A? 143. Then comes the question as to whether section 111A as subsequently amended and its scheme b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ament. He relied upon the judgments of the Supreme Court in Member, Board of Revenue v. Arthur Paul Benthall AIR 1956 SC 35 (paras 4 and 7) and Labour Commissioner v. Burhanpur Tapti Mills Ltd. AIR 1964 SC 1687 (para 7). In Arthur Paul Benthall s case ( supra ) the Court observed : 4. . . . When two words of different import are used in a statute in two consecutive provisions, it would be difficult to maintain that they are used in the same sense, . . . ****** 7. . . . It is not without significance that the Legislature has used three different words in relation to the three sections, transaction in section 4, matter in section 5 and description in section 6. (p. 38) In A.P. Burhanpur Tapti Mill s case ( supra ) the Court was concerned with two provisions of the CP Berar Industries Disputes Act as to whether the words describing a strike as rendered illegal are same as held illegal and the Court held that when different phraseology had been used, the conclusion is irresistible that this was done deliberately . He then referred to the decision of the Court of Appeal in Guardians of Parish of Brighton, In re 1891 2 QB 156. The Court was conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case ( supra ) and observed : Generally speaking, the broad guiding considerations are that wherever a right, not pre-existing in common law, is created by a statute and that statute itself provided a machinery for the enforcement of the right, both the right and the remedy having been created uno flatu and a finality is intended to the result of the statutory proceedings, then, even in the absence of an exclusionary provision the civil court s jurisdiction is impliedly barred. If, however, a right pre-existing in common law is recognised by the statute and a new statutory remedy for its enforcement provided, without expressly excluding the civil court s jurisdiction, then both the common law and the statutory remedies might become concurrent remedies leaving open an element of election to the persons of inherence. (p. 756) Mr. Nariman submitted that as is seen from a series of judgments and particularly the one in Om Prakash Berlia s case ( supra ), it has been held that the right to seek rectification of the register is a common law right. In Om Prakash Berlia s case ( supra ), it has been held to be a right available when certain additional shares were being gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available to all those undertakings which fall under section 108D from 27-9-1991. Thus, what is seen is that free transferability is as such not a new concept and is coupled with certain restrictions. There is, therefore, no reason to read down the provisions in the 1997 Regulations or to read the 1994 Regulations in such a manner that free transferability alone is permitted whatever may be the circumstances or other objectives under the regulations such as transparency, competition and participation. 147. It has come to be recognised, as seen earlier, way back in 1951 - Charanjitlal Chowdhury s case ( supra ) that right to vote of a member of a company is a statutory right and in that case it was curtailed under the Ordinance under which the management of Solapur Spg. Wvg. Mill was taken away and it was held not violative of article 19 of the Constitution. A right given by a statute can always be curtailed by the statute in a suitable way and for permissible reasons. In the context of industrial law, although an employer has a right to hold a property and the right to property includes a right to close down the industry when deemed necessary, the particular facets of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any provision, now the wording of section 111A made it necessary that the company had no option but to transfer the shares and if aggrieved, all that it could do was to appeal to the CLB to get such members removed from the register. It was submitted by Mr. Chidambram and others that in any case in the meanwhile the voting rights shall continue to be available to such persons. 150. As against that, Mr. Nariman submitted that this submission implies that even if the enrolment of any shareholder is in complete violation of law, he will be entitled to remain thereon and such persons will have the right to vote until the register is rectified. Mr. Nariman submitted that the prevention is better than a cure and the provisions of sections will have to be read to see as to whether any prevention was provided or not. 151. As far as right to more the civil court for rectification of the register is concerned, Mr. Nariman submitted that if one looks to the 1994 Regulations, it was clear that the shareholders were given a right to complain to the SEBI under regulation 33(2)( a ). The shareholders were also given a right to give a public bid and to receive the highest price when of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entertained. Mr. Chidambaram had submitted that now under section 111A(2), shares are made freely transferable and the proviso thereto provides that if a company refuses to transfer shares without sufficient cause, the CLB is duty bound to direct the registration of transfer. Mr. Nariman, however, pointed out that section 111A(2) proviso cannot mean that the CLB has to allow all the appeals seeking registration of transfer of shares, whatever may be the facts. It can reject it for sufficient cause. Now section 111A(7) refers to other clauses of section 111 which are saved and made available under section 111A. Once such clause is clause (7) which is with reference to title. Mr. Nariman, therefore, submitted that if there is no valid title, or if a title is sought to pass in contravention of the SEBI regulations, the company has a right to reject the application for transfer. It cannot mean that it must first entertain the transfer and then go in appeal to the CLB as canvassed by Mr. Chidambaram. Such a construction cannot be placed on section 111A(2) proviso. Mr. Nariman submitted that this ground will also be available to a litigant whose right under a common law as a member is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstance, the requisite permission under the FERA is not obtained, it is open to the company and, indeed, it is bound to refuse to register the transfer of shares of an Indian company in favour of a non-resident. . . . (p. 1412) Mr. Nariman submitted that if the interpretation of Mr. Chidambaram is accepted, it would run contrary to the aforesaid observations of the Supreme Court and foreign companies could walk in and buy majority shares and it would be without any competitive bid as required by the law. Mr. Nariman drew my attention in this behalf to the observations of the Supreme Court in paras 68 and 69 in the case of N. Parthasarathy v. Controller of Capital Issues AIR 1991 SC 1420, wherein even before coming into operation of the Regulatory Code of 1994, the Supreme Court had disapproved the cornering the shares and clandestine transactions entered into surreptitiously by holding that it would be against public policy and illegal and void under section 23 of the Indian Contract Act. The Supreme Court observed as under : 68. We cannot subscribe to the contention raised by Dr. Singhvi that there was nothing wrong or illegal even if the action of Reliance Group was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hairman s internal noting. Not only that but the newspaper report which was annexed to the plaint at page 46 also indicated that the learned functionary had intervened and advised SEBI to function in a particular manner. Mr. Doctor criticized this conduct on the part of the plaintiffs and the manner in which SEBI succumbed to these pressures. He submitted that this was not expected from a high functionary like the former chairman of SEBI Committee nor was it expected from the SEBI which was supposed to function as an independent authority. 156. Then commenting at para 8 of the plaint, Mr. Doctor submitted that it showed the ulterior motives of the plaintiffs. It clearly showed that the plaintiffs have not filed the suit either as shareholder nor they have filed the suit as a derivative action on behalf of the company. It clearly showed that they have filed it to threaten if there was a change in the management. In fact, as can be seen from paras 9 and 10 of the plaint, during 1995 and 1996 the plaintiffs clearly say that they have no cause of action because the defendants did not disturb the then management and thereby the plaintiffs were happy. But as can be seen from para 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plaintiffs had admittedly received dividends as can be seen at page 567 of the compilation of documents. Apparently, therefore, the plaintiffs were filing the suit in support of the Mallyas and in support of the existing management. The Chancery Division observed thus: If it be the fact, as I think it is, that these plaintiffs knew of all that had been done, received their dividends with knowledge of all the facts, and then brought this action with the money still in their pockets, ought they to be allowed to bring this action, which, as I have pointed out, is, to my mind, an action such as they can bring in consequence of their personal interest in the matter? I think not. I think that an action cannot be brought by an individual shareholder complaining of an act which is ultra vires if he himself has in his pocket at the time he brings the action some of the proceeds of that very ultra vires act. Nor, in my opinion, does it alter matters that he represents himself as suing on behalf of himself and others. I think that the reason which requires us to say he ought not to bring such an action equally requires us to say that he ought not to be the peg upon which such an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiff may not be a proper person because his conduct is tainted in some way which under the rules of equity may bar relief. He may not have come with clean hands or he may have been guilty of delay. (p. 377) Later on, the court quoted with approval the earlier cited observations in Towers case ( supra ). 159. Then, Mr. Doctor relied upon the judgment of the Court of Appeal in the case of Prudential Assurance Co. Ltd. v. Newman Industries Ltd. [1982] 1 All ER 354, wherein the court held as follows: Although the proper plaintiff in an action in respect of a wrong done to a company was prima facie the company itself, exceptionally a minority shareholder could being a derivative action where the wrong done to the company amounted to fraud and the wrongdoers were themselves in control of the company and, thus, able to prevent the company from suing; but when such an action was brought by a minority shareholder the question whether in fact the company was controlled by the alleged wrongdoers should first be determined before the derivative action itself was allowed to proceed. (p. 355) Later, in the judgment, the Court of Appeal discussed that, as laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de on 17-4-1997 and ( ii ) because of the breaches of the SEBI Regulations 1994-97. Mr. Doctor pointed out that this statement and stand is not correct inasmuch as much thereafter in the Board meeting of 26-8-1997, a transfer of 850 shares to Mahameru (defendant No. 4) and 250 shares to Imfa (defendant No. 3) was permitted. That was after the rejection of shares sought to be transferred on behalf of Shirish. This can be seen at p. 438 of the compilation. Hence, Mr. Doctor submitted that the declarations of 17-4-1997 upon rejection of shares of Shirish was not at all the real ground. The real intention was to obstruct the majority from exercising its rights and to perpetuate the minority group. This very thing was specifically there in Merryweather s case ( supra ) and that was sought to be achieved through the present suit. 161. Mr. Salve, the learned counsel appearing for defendant No. 1 supported the above submission by the relying upon Barrett v. Duckett [1995] 1 BCLC 243, wherein the Court of Appeal held that a shareholder would be allowed to bring a derivative action on behalf of a company where the action was brought bona fide for the benefit of the company for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended that the courts below should have dismissed the applications as the respondents did not come with clean hands. This contention must be rejected for several reasons. The respondents are not seeking equitable relief against forfeiture. They are asserting their legal right to the shares on the ground that the forfeiture is invalid, and they continue to be the legal owners of the shares. Secondly, the maxim does not mean that every improper conduct of the applicant disentitles him to equitable relief. The maxim may be invoked where the conduct complained of is unfair and unjust in relation to the subject-matter of the litigation and the equity sued for. The unwarranted proceedings under sections 402 and 237 of the Companies Act, 1956 and other vexatious proceedings started by the respondents have no relation to the invalidity of the forfeiture and the relief of rectification and are not valid grounds for refusing relief. (p. 492) Mr. Nariman, therefore, submitted that as observed in Palmer s Company Law, the requirement of clean hands does not apply to personal action and again, as observed by the Supreme Court, one who comes to court must come with clean hands does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plaintiff commences his action suing on behalf of himself and all other shareholders against the company and the directors, and he seeks to restrain an intended issue of a very large number of shares, which the plaintiff says are not authorised to be issued by the defendant-company or the directors at the present time. Mr. Upjohn takes a preliminary objection to this effect. He says, You, the plaintiff, were a moving party to the passing of the resolutions which authorised this issue. You, yourself, have taken certain shares under an earlier issue made in pursuance of those resolutions, and there is a personal exception to your position as plaintiff, and, whatever other shareholders might do, you at least cannot restrain the company from issuing these shares, even on the assumption that the issue is improper ; and for that proposition Mr. Upjohn cites the case of Towers v. African Tug Co., which it is necessary for me to deal with. Now what was Towers v. African Tug Co.? That was a case in which the directors had paid dividends out of capital, and the plaintiffs in that case sought, not an injunction or anything with reference to the future, but a personal order upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question) there is nothing, in my view, which has any bearing on the rights of a plaintiff suing not in a peculiar and irregular manner for the company or on behalf of the company, but suing in his own individual right as an individual shareholder seeking to restrain its future actions. There is nothing in that case, so far as I am aware, or in any other authority, and certainly nothing in principle, which prevents a plaintiff from saying A wrong may have been done in the past - that is a matter with which we have nothing to do here - but you shall not do this wrong again in the future . In my opinion, there is nothing in the preliminary objection taken by Mr. Upjohn, assuming as I do the accuracy of all the facts which he opened on this point, which prevents us from considering this appeal. Similar view is taken by a Division Bench of this court in the case of Sulleman Somji v. Bank of Bombay 31 Bom. LR 319. In that case, it was contended that the sole object of the appellant is seeking inspection was to cause annoyance to the bank officials. However, as can be seen at p. 332 the Division Bench held And even if it be that the appellant has some indirect motive of the kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egation of the defendants that the plaintiffs have faulted the efforts of Imfa, K.R. Chhabria or M.D. Chhabria to make a public offer even ex post facto. As far as the period prior to the suit is concerned, it can be seen from the letter dated 7-12-1995 that Imfa wrote to SEBI contending that the 1994 Regulations were not applicable to it and it sought clarification from the SEBI. Imfa also wrote to Bombay Stock Exchange about non-applicability of clauses 40A and 40B of the Listing Agreement. On 10-1-1996, SEBI wrote to Imfa with respect of clarification sought ( vide letter dated 7-12-1995) and in that requested Imfa to give notice of acquisition giving date of acquisition, number of shares acquired, name of broker, etc. The letter also sought clarification about the persons behind Imfa along with details of acquisition of any persons acting in concert with them. Imfa replied on 24-1-1996 giving the names of its directors and three shareholders (Ram Raheja - 40,000 shares, I Khairulla - 10,000 shares, and F Khairulla - 10,000 shares) and specifically stated we have acted on our own and we have not acted in concert with any other person in the above transactions nor has any per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement before making the substantial acquisition of shares and are, thus, liable to be prosecuted for the violation of the said regulations under section 24 of the SEBI Act. In the same letter, SEBI turned down the request of Imfa for exemption under regulation 4. SEBI stated that the contention that the residual public holding will go down to less than 20 per cent was no ground for non-compliance. It further stated that in previous cases, the SEBI had allowed the acquirer to disinvest within a period of 6 weeks. Mr. Nariman submitted that this would be an aspect on which evidence will have to be sought from SEBI. 167. Ram Raheja replied to this notice of SEBI on 19-10-1996 that he had ceased to be a director of Imfa from 29-6-1996. M.D. Chhabria took over the management of the company. Hence, Mulla Mulla wrote on 23-12-1996 again on behalf of Ram Raheja stating that he had no intention of either taking control or taking part in the management of Herbertson, and that he had purchased the shares only by way of investment. In view of reply of Ram Raheja that he was no longer a director, SEBI sent second show-cause notice now addressed to the managing director of Imfa on 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18-12-1998. The writ of summons had been served on the defendants within the time stipulated for that and the written statement was expected to be filed by 16-4-1998 as per rule 74 of the High Court (OS) Rules. The same has not been filed as yet. Mr. Nariman submitted that the documents which were sought by SEBI right from 1995-96 were not made available to them leaving SEBI helpless, but they are being produced for the first time now in the Court, including some of the documents of SEBI itself. Mr. Nariman submitted that if the defendants are aggrieved by filing of the suit or prayers made therein, they were expected to move with clean hands and quickly. There was gross delay on their part in this behalf. 170. That apart, as far as SEBI is concerned, it was in the know of filing of the suit though it has not been joined as a defendant therein. Mr. Nariman tendered a photocopy of the letter dated 4-12-1997 which showed that the papers and proceedings of Suit No. 3910 of 1997 were forwarded to SEBI by the attorneys of the plaintiffs. In that letter it has been specifically stated that It is our clients grievance in that suit that had a public announcement been made prior to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of SEBI, I have now decided without prejudice to my earlier stand to make the public offer which will be made jointly and/or severally by the companies under my control under regulations 10, 11 and 12 of the Takeover Code, 1997 . The letter further states that he was going ahead with the appointment of merchant banker and seeks a confirmation from SEBI that they were in agreement with the above. SEBI does not give any such confirmation at any point of time. Thereafter there are series of letters dated 16-3-1998 and 2-4-1998 again seeking this confirmation. SEBI, however, did not give any such confirmation. On the other hand, on 8-5-1998, SEBI wrote to M.D. Chhabria asking for full details of acquisition by three companies, including terms and conditions of loan, rate of interest, time for which loan was given, securities, pro-note collateral furnished against this loan and other details. In para 5( f ), SEBI specifically asked as to how and at what point of time did M.D. Chhabria reach the conclusion that promoters of Imfa, Mahameru and Shirish, would not be able to repay the loan. SEBI also asked for details of various steps taken by Chhabria to recover this amount from the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( supra ) and its effect on the stand of the defendants can be seen from an opinion sought by the defendants of a former Solicitor General which is produced in the compilation. The querists had specifically asked a question therein as to whether it is advisable to go ahead with the public advertisement after the judgment in the case of Fascinating Leasing Finance Ltd. ( supra ). Mr. Nariman, therefore, submitted that the case of the defendants that their public offer was thwarted by the plaintiffs has no basis, although they tried to contend so in their affidavit in reply. Mr. Nariman further submitted in this context that what is relevant is that under regulation 14, such an offer has to be made in advance before acquisition and there is no provision for a subsequent announcement and assuming without conceding that any such interpretation is possible, no such announcement was ever suggested by SEBI nor has the same been given by the defendants and that there was no impediment against the same. 173. Mr. Nariman submitted that from the record produced by the defendants, it is clear that SEBI had given a show-cause notice first to Ram Raheja and then to Imfa for violation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e files of SEBI as also their reports and giving incomplete text thereof. Mr. Nariman submitted that this shows as to how and who had better access and influence on SEBI. That apart, he maintains that the stand of SEBI with respect to public announcement was also throughout very clear. He pointed out that it was because of the complaint lodged by the plaintiffs that not merely the defendant by Mr. Vijay Mallya was also given a notice for the acquisition made by him. This can be seen from the affidavit of Mr. Reddy at p. 90. Thus, the finding of SEBI is also against Mr. Vijay Mallya. Orders unless set aside remains valid 175. Mr. Dada submitted that it was not known whether the investigating officer had done any investigation before issuing the notices. He, therefore, submitted that they were contrary to regulations 33 to 37 of 1994 Regulations. They were illegal and mala fide. Issuance of notices cannot mean that SEBI had taken a prima facie view. Mr. Nariman, therefore, submitted that what is to be noted is that there were two show-cause notices first to Ram Raheja dated 9-10-1996 and then second one to Imfa dated 31-3-1997 issued by SEBI which were both prior to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein in paras 22 and 23, the Supreme Court observed as follows: 22. There is another aspect of the matter. The Controller s permission when granted to create a limited tenancy under section 21 of the Act is presumed to be valid unless declared otherwise. It is, therefore, for the person assailing its validity to get such a declaration from a proper forum in a proper proceeding. Unless this is done, the order remains enforceable. The duty is clearly on the tenant himself to raise the plea of invalidity and unless the order is declared invalid at his instance, its enforceability cannot be doubted. 23. In Wade s Administrative Law, 6th edn. At pp. 351-353, there is an illuminating discussion of this topic. It has been pointed out that void is meaningless in an absolute sense; and unless the necessary proceedings are taken at law to establish the cause of invalidity and to get it quashed or otherwise upset, it will remain as effective for its ostensible purpose as the most impeccable of orders. In the words of Lord Diplock, the order would be presumed to be valid unless the presumption was rebutted in competent legal proceedings by a party entitled to sue. (p. 333) 176 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically a nullity, but the court may refuse to quash it because of the plaintiff s lack of standing, because he does not deserve a discretionary remedy, because he has waived his rights, or for some to her legal reasons. In any such case the void order remains effective and is, in reality, valid. It follows that an order may be void for one purpose and valid for another ; and that it may be void against one person but valid against another. (p. 5) 177. Of particular interest, in the judgment of the Supreme Court in the case of Tayyabbhai Mohammedbhai Bagosarwala v. Hind Rubber Industries (P.) Ltd. 1997 (2) MLJ 1. In that case, it has come to be held that the civil court has no jurisdiction over a particular matter. However, before the issue of jurisdiction was decided under section 9A added to the Code of Civil Procedure, by Maharashtra Amendment, the Court had granted ad interim order, which was within the power of the Court under sub-rule (2) thereof. It was alleged that ad interim order was valid and thereby there was contempt. The Supreme Court referred to the judgment in the case of Shiv Chander Kapoor ( supra ) and held : The interim orders so passed are o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court in Dorab Cawasji Warden s case ( supra ), the last uncontested status is required to be maintained till the disposal of the case. In the present case, that has to be in the context of the taking over of the management. He, therefore, submitted that the injunction as sought was necessary. As far as developments subsequent to the filing of the suit is concerned, it is a moot question as to what extent it can be considered by the time the application for interim relief comes to be decided or by the time the suit comes to be heard and decided. There are judgments to canvass either of the proposition that they should be considered or they may not be considered. Mr. Nariman submitted that in either case, as far as the present proceedings are concerned, there are two show-cause notices prior to the suit and one subsequent which are both pending. 180. This, however, does not mean that the transferors of the shares from whom they were bought by the defendants should be left in lurch. They have got to be protected. In fact as rightly pointed out by Mr. Salve and as held by the Supreme Court in State of Rajasthan v. Associated Stone Industries (Kota) Ltd. AIR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and which were illegally and, in any case, improperly procured. Mr. Nariman submitted that even if the plaintiffs are close to Vijay Mallya, they cannot be prevented from raising the issue of illegality. 182. On the other hand, the earliest document in the compilation produced by the defendants is the letter dated 31-8-1998 which is at p. 1 of Vol. II. It shows that K.R. Chhabria was invited by Vijay Mallya to join Herbertson. This was also admitted by K.R. Chhabria in his affidavit in para 7 at p. 46 in reply to the notice of motion in Suit No. 3120 of 1997. Mr. Nariman pointed out that K.R. Chhabria as well as the plaintiffs had come in Herbertson on the footing that the UB group of Vijay Mallya retains the control and he remains the chairman. It is the defendants who are now subsequently having second thoughts. 183. On p. 17 of the reply in ground (h) , there was a reference to the assessment order against the company dated 31-3-1997 and to the allegations of siphoning of funds. In this connection, Mr. Nariman referred to K.R. Chhabria s letter dated 13-6-1997 which is at page 132 of compilation I, which is supposed to allege siphoning of funds by Balaji group of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintiffs that a notice had been given to Vijay Mallya. That can be seen from the documents on record. Whether transferors are necessary as parties 186. Mr. Nariman submitted that the dispute was between the plaintiffs and the persons or the companies which had illegally acquired share in violation of law. The transferors of shares were not in picture. If necessary, the transferees will suffer the penal consequences for breach of regulation 24(1) of the SEBI Regulations. As far as the transferors are concerned, they will not suffer any penal consequences and as far as civil consequences are concerned, assuming without conceding that there would be any, he submitted that even the plaintiffs are prepared to deposit an amount of over ₹ 15 crore in the court to safeguard their interest. He submitted that the prohibition was against the acquisition of substantial shares in violation of the SEBI Regulations when made before the announcement. Even the show-cause notice also stated it and that is how regulation 14 will have to be read. The only exception to this can be regulation 4 under which there can be exemption from Chapter III. He relied upon the following passage from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the proposition in Mannalal Khetan s case ( supra ) will still hold the field. To advance this proposition, Mr. Nariman also referred to a Full Bench judgment in Krishna Menon s case (supra), where Sajan Singh s case (supra) was referred and followed in the correct perspective. He also referred to a judgment of the Supreme Court in the case of Kuju Collieries Ltd. v. Jharkhand Mines Ltd. AIR 1974 SC 1892 to contend that the contract would be void vis-a-vis the defendants. In para 8, the Supreme Court observed as follows : A person who, however, gives money for an unlawful purpose knowing it to be so, or in such circumstances that knowledge of illegality or unlawfulness can as a finding of fact be imputed to him, the agreement under which the payment is made cannot on his part be said to be discovered to be void. . . . (p.1894) He also referred to the observations from Mulla s Contract 11th edn., on section 23 to the similar effect. He then relied upon the judgment of the Supreme Court in Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar [1989] Supp. 2 SCC 656, wherein in para 15 in the context of an application under section 155, the court specifically hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd.). In that case, 1997 Regulations were under consideration and SEBI had issued certain directions and those directions were left undisturbed by the appellate authority. In para 13, the court had observed that SEBI had powers to pass interim order before and during the inquiry or investigation to effectuate the purpose of the SEBI Act and the Regulations. The court observed that both under sections 11 and 11B, the duties cast on the Board are to protect the interest of the investors in securities and to promote and regulate the securities in market. The court observed that the power of SEBI is of a very wide nature and is not hedged in by any restrictions and it will embrace the power to issue interim orders. In para 13, the court also observed that The determination of these questions will not be made by this court sitting in writ jurisdiction when such determination lies in the domain of the authorities mentioned in the regulations . In this context, he also drew my attention to the unreported judgment of a Division Bench of Gujarat High Court in the case of Alka Synthetics [LPA No. 236 of 1997 dated 29-12-1998] where also the court held that for any breach of the SEBI Regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... announcement. If SEBI directs such a competitive bid after finding that there was any breach in the purchases, the announcement and competitive bid can be gone into at that stage. In the meanwhile, however, the voting rights should not be disturbed. He referred to the judgment of a Division Bench of this court in the case of Premier Automobiles Ltd. ( supra ), wherein in the context of the illegality of a lock-out under the MRTU Pulp Act, 1971, the Division Bench observed that the illegality involved in this process is not absolute, or incurable is also evident from sub-section (5) of section 25 . He pressed for a similar approach assuming that there is any breach in not giving a public announcement. Similarly, he referred to Punjab Beverages (P.) Ltd. s case ( supra ), wherein the Supreme Court held in para 7 thereof that for finding out whether an order of dismissal in violation of section 33(2)( b ) of the Act, the whole of the statute is to be looked into and the court held that despite the mandatory language employed in section 33 and the penal provision enacted in section 31(1), the legislative intent was not to invalidate an order of discharge or dismissal passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t May, 1991, the CLB performs the functions that were, theretofore, performed by courts of civil judicature under section 155. It is empowered to make orders directing rectification of the company register, as to damages, costs and incidental and consequential orders. It may decide any question relating to the title of any person who is a party before it to have his name entered upon the company s register, and any question which is necessary or expedient to decide. It may make interim orders. Failure to comply with any order visits the company with a fine. In regard to all these matters it has exclusive jurisdiction (except under the provisions of the Special Court Act, which is the issue before us). In exercising its function under section 111 the CLB must, and does, act judicially. Its orders are appealable. The CLB, further, is a permanent body constituted under a statute. It is difficult to see how it can be said to be anything other than a court, particularly for the purposes of section 9A of the Special Court Act. (p. 95) 197. As far as Mr. Dada s submission that the plaintiffs ought to go to SEBI is concerned, it has its own limitations. Presently, it is only the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation without taking away the access to the civil court will only mean that the plaintiffs have two remedies and it will be for them to elect as to where they ought to go. 198. Mr. Chidambaram, the learned counsel for defendant No. 11, had, amongst others, referred to and relied upon a number of orders passed by SEBI in different disputes. Thus, in the case of Macmillan India Ltd., the acquirer H.M. Publishers Holding Ltd. was directed by SEBI to make post facto offer while making it clear that this does not mean condonation of the violation by the acquirer. But the case of Hilton Rubbers Ltd. was not a case wherein SEBI directed to make a public offer after crossing the threshold limits under the 1997 Regulations. Similarly in the case of Saurashtra Cement Ltd., the public offer of the Autoriders Group, which were acquirers, was not in issue. Similarly, Sterlite Industries Ltd. was not a case where SEBI directed it to make post facto offer nor were the cases of Sterling Horticulture Research Ltd. and Morgan Stanley. In Hikal Chemicals Industries Ltd., SEBI did not direct the acquirer to make post facto offer under the 1997 Regulations. But that was not a case of acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholder of a company has a private right, inter alia, to receive dividends, to participate in the management by voting at general meetings (the right to vote being a statutory right available to all members under section 87 of the Companies Act), to participate in the distribution of assets at the time of winding up of the company, etc. (for discussion on all the rights of shareholder, Palmer s Company Law, Vol. 1, p. 7034 relied upon). (3) The plaintiffs assert that the Takeover Code confers upon them a right to make a competitive bid where there is a Takeover Bid, and consequently they have right to maintain the present suit. In this context, it is submitted that: ( a )The present suit is not to assert any such rights to offer a competitive bid. The prayers in the plaint are to- ( i )declare the purchase to be void, and ( ii )consequently to either direct a rectification (where the company has registered the transfer) or to reaffirm a refusal of registration (where the company has declined to register of the transfer). There is no relief claimed which would result in the plaintiffs being aided or facilitated in the exercise of their right to a competitive bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting rights - the prayer for freezing the voting rights is an interlocutory prayer as a step in aid of the final prayer for the declaration that the acquisition of shares is void, and the consequential relief by way of rectification of the register of members. A declaration that the acquisition of shares is void would undoubtedly interfere with the exercise of discretion by the SEBI under regulation 39. (6) An application for permanent injunction under section 38 of the Specific Relief Act can be granted to protect or preserve the rights of the plaintiffs. Assuming without conceding that the plaintiffs have a right to competitive bid, the exercise of voting rights do not in any manner affect this right of the plaintiffs. (7) A suit cannot be filed for enforcement of a law generally. In any event, the right being asserted by the plaintiffs is a statutory right. The statute which confers this right sought to be asserted by the plaintiffs itself provides a mechanism to deal with its infraction and creates an authority endowed with the discretion to pass appropriate orders which would further the object of the statute. It is submitted that in such a circumstance, a court of equit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the delinquent party to action. An acquisition of shares by any person would not affect the innocent transferor to protect whose rights, the Code has been enacted. ( b )For the breach of a statutory obligation such as the Code, in the first place the consequences should be found within the law. If the result of an acquisition in contravention of the Code was to render the acquisition itself void, the Code would certainly have made express provision therefor. It is inconceivable that a Code which has been drafted in such detail - and now revised by an expert Committee - would be silent in relation to such an important matter. ( c )The consequence suggested would be inconsistent with the powers of the SEBI under regulation 39. The SEBI surely cannot direct a delinquent acquirer to sell shares if his purchase in the first instance is itself void ab initio. A fortiori, the SEBI cannot prohibit a delinquent acquirer from selling shares if initial purchase is itself void ab initio . (11) In order to establish a prima facie case which would justify the grant of an interim injunction against exercise of voting rights, the plaintiffs must satisfy the Court that the purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be pressed into service by a plaintiff who is disputing the correctness of the company s register by filing a suit where he is agitating the erroneous entries obtained on the basis of clandestine purchases. Once it is held that a shareholder has a right in having the purity and the correctness of the register, it flows that the manner in which the illegal purchases and entries are made could always be a ground to press into service. As far as the grievance of Mr. Salve with respect to competitive bid is concerned, it is no doubt true that the plaintiffs do not want to oust the management of the company. In fact, they very much clearly support the same. However, in the event, the management is likely to be ousted by takeover, it is their case that they would like to join in that bid and compete. That submission is very much made in the plaint and it cannot be said to be an afterthought. There is no inconsistency in the support to the present management and saying at the same time that if it is to be disturbed and to be handed over to the group of defendant Nos. 1 to 11, the plaintiffs would like to intervene and give a competitive bid. As far as the SEBI Takeover Code being a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon the commentary of Weinberg on Takeover and Mergers to show that what is the purpose behind such provisions in UK. In this connection, we cannot ignore the realities in India and the fact that unless these preventive mechanism are strictly interpreted, Indian companies would come in difficulty as canvassed by Mr. Nariman. It is true that there are various other preventive mechanism as canvassed by Mr. Salve. That, however, does not mean that the present mechanism ought not to be read strictly. For quite sometime, the Supreme Court has told us earlier in Hind Overseas (P.) Ltd. v. Raghunath Prasad Jhunjhunwalla AIR 1976 SC 565 and recently in Kilpest (P.) Ltd. v. Shekhar Mehra [1996] 23 CLA 173 1 that we cannot ignore the conditions of Indian society. In Kilpest (P.) Ltd. s case ( supra ), the Supreme Court noted the observations in Hind Overseas (P.) Ltd. s case ( supra ) and observed as follows : The court observed that although the Companies Act was modelled on the English statute, the Indian law was developing on its own lines and making significant progress. Where the words used in both the Indian and English statutes were identical. English decision mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on he referred to section 2(12) and section 81(1)( iii ) of the Companies Act. He submitted that if the debentures were fully convertible when purchased, the allegation relates back to 1993 though the conversion has been made in 1994. In that view of the matter, this conversion will also not be hit by 1994 Regulations. Mr. Dada, therefore, submitted that regulations 9 and 10 will not only apply to 3,75,000 FCDs bought on 14-12-1993. This submission of Mr. Dada will have to be accepted. 206. It is true that in earlier judgments of the Supreme Court in the cases of S. Parthasarathy ( supra ) and LIC of India ( supra ), there were observations against clandestine purchases and attempts to takeover, but there were no specific regulations making any provision in that behalf. The plaintiffs are making a grievance with respect to the breach of 1994 Regulations. This grievance of the plaintiffs, therefore, cannot be stretched to a point of time prior to the 1994 Regulations coming into force. In the circumstances, in any case, the prayer in the two motions with respect to the convertible debentures purchased in December 1993 is difficult to sustain. 207. In the facts and cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiffs have a prima facie case and finally decide in favour of the plaintiffs, in the meanwhile defendant Nos. 1 to 11 will gain control. The plaintiffs have relied upon a number of financial irregularities on the part of defendant No. 1 who is in control of BDA Ltd. which is a wholly owned subsidiary of defendant No. 12. It is, therefore, submitted by them that if in the interregnum no injunction as sought for is granted, the affairs of defendant No. 12-company will suffer further. As against that, Mr. Salve, the learned counsel appearing for defendant No. 1, submitted that the plaintiffs will continue to get their dividend in the meanwhile and if they finally succeed, the management will again go back to the group which the plaintiffs are espousing to support. Mr. Salve submitted that the plaintiffs were essentially the distributors of defendant No. 12 and their business would not be affected merely because there is a change in management. He submitted that what is to be seen is that the interest of the plaintiffs is to be protected and not of someone else whom the plaintiffs are trying to support. Mr. Salve submitted that under section 38 of the Specific Relief Act read with or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the Central Government had appointed Mr. Mallya as the Executive Chairman of this company by an order dated 8-12-1998 for a period of 5 years though that order is under challenge in a petition filed by defendant No. 11 herein in the Delhi High Court being Writ Petition No. 629 of 1999. Mr. Nariman submitted that with a view to protect the interest of the plaintiffs if the Court so desires no policy decision, particularly concerning sale of assets, merger or amalgamation, etc., passed by the Board and if objected by the plaintiffs, shall be implemented for a certain period, or that it may be provided that no general meeting be called without prior application to this Court until some further appropriate orders are passed. Mr. Seervai, the learned counsel appearing for defendant No. 12, expressed his agreement to this suggestion. Mr. Nariman also offered to deposit an amount of ₹ 15,22,65,422.50 so as to cover the financial losses, if any, in case any order of disinvestment comes to be passed at a later point of time whereby the defendant Nos. 1 to 11 would receive such amounts less than what they have put in purchasing the disputed shares. The defendants of course ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all their rights until their names are removed from the register. But the right to vote on the basis of their shareholding can, however, be restricted by this Court and/or SEBI in view of the decision taken in the order passed above. 213. In the circumstances, having held that the plaintiffs have made out a prima facie case with respect to the disputed acquisitions in paras 18( ii ) and ( iii ) and having heard the counsel on both sides with respect to appropriate order to be passed, in my view, it would be proper that defendant Nos. 1 to 11 and their power of attorney and proxy holders ought to be restrained and they are hereby directed and restrained from exercising voting rights, directly or indirectly, insofar as they pertain to the shares detailed in paras 18( ii ) and ( iii ) of the plaint. This will, however, be with a rider that any policy decision to be taken by the board of directors on items such as sale of assets, amalgamation, merger, etc., if objected to by the defendant Nos. 1 to 11 in writing, will not be implemented for a period of 8 weeks from the date on which the decision is communicated to the defendants. Any objection in this behalf will be furnished t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the work as the Commissioner will attend at the time of scrutiny and the additional charges for that attendance will be paid by defendant No. 12 quantified at ₹ 1,000. 219. Mr. Bookwala requests that the proceedings before the SEBI be heard and decided within a certain specified time. Inasmuch as SEBI is not before me, it would be difficult to know as to what is the pressure on its time and within how much time it normally disposes of such a matter. Looking to the urgency on the sides of the defendants, SEBI will see to it that the notices are decided expeditiously. 220. Liberty to the parties to apply in case of urgency. 221. Mr. Bookwala seeks stay of this order for a period of 12 weeks with a view to file an appeal, if so advised. Looking to the number of issues in this matter as also the voluminous record, the request is granted and this order will remain stayed until 15-7-1999. 222. All the observations made while deciding these motions are on a prima facie basis. As far as the other authorities are concerned, it will be open to them to take their decision so long as they are acting within the four corners of the law. 223. Before I part with a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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